Sterling rallies ahead of key May-Juncker meeting

KBC Market Research Desk KBC Bank

Yesterday, EUR/USD rebounded further. If anything, headlines were euro negative rather than positive. Italian production and order data were again weak. ZEW German confidence was mixed and ECB members did speak soft. EUR/USD fell briefly below 1.13, but rebounded later. A better risk sentiment dented appetite for the dollar. A rebound of cable maybe also supported EUR/USD. The US NABH housing index rose more than expected but failed to inspire USD bulls. EUR/USD closed at 1.1341 (from 1.1311). Soft BOJ comments initially weighed on the yen, but USD softness finally caused USD/JPY to close little changed at 110.63.

Most Asian equity indices are trading in positive territory with China underperforming. The yuan rallied (USD/CNY 6.7250) on headlines that the US asked China to keep its currency stable as part of the trade talks. The yen (USD/JPY 110.85 area) weakened further on poor Japan foreign trade data. BOJ-Kuroda again suggested that BOJ policy isn’t weakening the yen. Still, recent BOJ-talk on the currency is striking. AUD/USD stabilizes in the upper half of the 0.71 big figure despite (slightly) softer than expected Q4 wage data.

Today, the EC consumer confidence is expected to ease further to -7.7 from -7.9. In the US, markets will look out for the minutes of the Jan 30 Fed meeting. The turn in the Fed’s bias is already well documented. Still, the (FX) market might be slightly more sensitive to dovish accents rather than ‘hawkish’ ones. Headlines on trade and on Brexit remain wildcards.

Last week, disappointing US data capped the USD rebound. EUR/USD rebounded off recent lows, but the picture remains fragile. Progress on global trade issues and better EMU data are needed for a more protracted EUR/USD comeback. There are hopeful signs on trade, but the jury is still out. EUR/USD 1.1216 marks the Nov low. EUR/USD 1.1287 is 61% retracement (2016 low/2018 top). The EUR/USD downside looks a bit more solid versus last week.

Yesterday, sterling showed remarkable strength. EUR/GBP drifted lower throughout the day and close below 0.87. Solid UK labour data helped sterling. At the same time, markets apparently hope that upcoming EU-UK talks might at least avoid a chaotic no-deal Brexit. Today, CBI order data are interesting but probably of second tier significance for GBP-trading. The focus will be on a new ‘crucial’ meeting between EU’s Juncker and UK PM May. It is unsure whether any real progress will be made. At least for now, sterling trading are inclined to see the glass half full rather than half empty. EUR/GBP 0.8621/17 is key MT support.

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KBC Market Research Desk

KBC Bank

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