On Friday, global risk sentiment remained fragile as China showed reluctant to continue trade talks as the US put the country under pressure with multiple, punitive measures of late. EUR/USD, USD/JPY and EUR/JPY initially developed a mild downtrend. Later in US dealings, the Michigan consumer confidence printed very strong, tilting the balance in favour of the dollar. USD/JPY rebounded to close at 110.08. EUR/USD was pushed to new intraday lows and finished the day/week at 1.1158.

This morning, Asian markets are again trading mixed as investors await the next developments in the US-China trade war. Japan Q1 GDP printed at a stronger than expected (2.1% Q/Qa), but details (consumption and investments) were weak as expected. As usual, the impact on the yen was modest. USD strength prevails this morning. USD/JPY is trading in the 110.20 area. EUR/USD hovers just above the mid 1.11 area. The Aussie dollar jumped higher (AUD/USD 0.6920 area) after the victory of the Liberal-National coalition in the parliamentary election.

Later today, the eco calendar is very thin. The Chicago Fed activity index is no market mover. At the end of last week, the decline in US yields slowed/bottomed, at least for now. This process might continue today as US equity futures show a cautiously positive start for risky assets. However, trade tensions might return at any time and markets are still pondering the consequences of the recent escalation for the global/US economy and for Fed policy going forward.

At the end of last week, the dollar outperformed the yen and the euro. However, the risk context suggests that further USD interest rate support won't be evident. If so, it is in the first place a negative for USD/JPY. The picture for EUR/USD is more mixed. Selling pressure from EUR/JPY might make a EUR/USD rebound more difficult. Even so, we maintain the working hypothesis that the EUR/USD 1.1110 level won't be easy to break without real negative EMU news. On Friday, sterling lost further ground as political uncertainty in the UK mounted after the Brexit talks between the government and the labour opposition collapsed. UK PM May said she will put a deal with an improved package of measures to Parliament, but it is unlikely it will be approved. The focus now turns to the contest on the leadership for the conservative party. The EU parliamentary election might show big support for hard-line Brexiteers. We assume this context to remain negative for sterling, even as the currency takes a breather this morning. EUR/GBP 0.8840 is nest resistance on the technical chart.

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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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