KBC Market Research Desk
KBC Bank
The recent rise of US yields and of the dollar petered out yesterday. Ifo Business Climate eased more than expected, but still indicated strong growth at the start of 2018. German yields declined after the release, but so did US ones. The reaction of the euro was negligible. US jobless claims printed near the cycle low, but didn’t help the dollar. US equities also failed to provide a clear guide for USD trading. Some dollar caution returned to the market. EUR/USD rebounded above 1.23 and finished at 1.2330. USD/JPY dropped back below 107 (close at 106.75).
Asian indices are showing gains of up to 1.0% overnight with mainland China underperforming. Japan January CPI (1.4%% Y/Y )printed slightly higher than expected, but the measure ex fresh food and energy stayed very low (0.4% Y/Y). The yen lost a few ticks after the release, but this was probably due to an overall bid for the USD. US Treasury secretary Mnuchin tried to ease markets’ inflation fears. In an interview, he said that the Trump policy will be able to raise wages without inflation. USD/JPY nears the 107 level. EUR/USD returns to the 1.23 area.
There are few important data today. The details of Q4 German growth are interesting, but a bit outdated and so is the final EMU CPI. Many Fed members will speak as markets are looking forward to the hearing of Fed Chairman Powel before Congress next week. Yesterday, we advocated some ST consolidation on the ST USD rebound. We hold on to that view. LT US yields are near (10y)/testing (30y) key resistance. It needs probably high profile news for a break. In this context, the recent USD rebound might slow. First resistance for the trade-weighted dollar comes in at 90.57. First support in EUR/USD is coming on the radar (1.2206/1.2165). However, it might be too early for a test. US equities area a wildcard for USD trading. Of late there was a tentative inverse correlation between US equities and the dollar.
Sterling declined temporary yesterday after the downward revision to UK Q4 GDP (0.4% Q/Q from 0.5%). However, the move didn’t go far. EUR/GBP basically hovered in the mid 0.88 area as recent BoE hints on a rate hike and political noise on Brexit kept each other in balance. The meeting of UK PM May with her top Ministers resulted in a confirmation of the ‘three basket approach’ which the EU sees as cherry picking. So, for now the stalemate in the negotiations will probably persist. We expect more range trading of EUR/GBP in the 0.88 big figure.
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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