KBC Market Research Desk
KBC Bank
Next Report will be published on Wednesday 2nd May, 2018.
The rise of core/US yields and of the dollar slowed yesterday ahead of the ECB’s policy decision. The ECB left policy unchanged and Draghi didn’t give new info on a future change in policy. First tests of 1.2155 support before and during the press conference failed. Later, the break finally succeeded. The constructive underlying USD momentum was the main driver. The lack of new guidance on ECB normalization probably discouraged euro longs. EUR/USD was already on a down trajectory. The topside in the likes of EUR/GBP and EUR/JPY was blocked. More euro longs finally threw the towel. EUR/USD closed the session at 1.2103. USD/JPY finished the day little changed at 109.30. EUR/JPY finished at 132.30 (from 133.07).
Asian equities mostly show modest gains overnight supported by good results from several technology bellwethers, including Amazon. The underperformance of Chinese stocks is again striking. The BOJ maintains its policy stimulation, as expected, but changed its language on inflation. It removed the assessment for inflation to reach 2% around fiscal year 2019. For now, the impact on the yen is close to non-existent. USD/JPY trades in the 109.15 area. EUR/USD hovers in the low 1.21 area.
The eco calendar heats up today with the EC confidence data, Q1 growth figures in France, Spain and Belgium and German labour data. The key data feature is the US advance Q1 GDP report. A modest 2.0% Q/Qa is expected. So, the bar of consensus is not that high. We keep also a close eye at the price series of the report. The core PCE deflator is expected to rise from 1.9% to 2.5%! Quarterly growth data are always a bit backward looking. In this respect, we assume that next week’s US early month data are more important for the fate of the dollar. However, a constructive report might support further USD gains. From a technical point of view, we look for confirmation of yesterday’s break below 1.2155. If confirmed, next support comes in at 1.2055 (50% retracement) and the 1.1936/16 area (62 % retracement/jan 2018 low).
EUR/GBP dropped from the mid 0.87 area to fill bids north of 0.8680 yesterday. We see the move mainly as euro softness. UK Q1 GDP is expected at a soft 0.3% Q/Q and 1.4% Y/Y today. BoE Carney and Haldane speak. We don’t expect any high profile news for sterling. However, market expectations are already low. Further euro (EUR/USD) weakness might still filter through in the EUR/GBP momentum.
This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.
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