USD stages cautious comeback

KBC Market Research Desk KBC Bank

The dollar traded with a slightly positive bias yesterday, continuing the tentative bottoming that started end last week. Traded volumes were subdued with US markets closed for President’s Day. There were only second tier eco data in Europe. Risk sentiment turned less positive. In line with the recent market dynamics, this was slightly USD supportive. EUR/USD dropped temporary below 1.24, but finished the session little changed at 1.2407. USD/JPY closed at 106.59 (from 106.21).

Mainland Chinese markets and Taiwan are still closed for the Lunar New Year. Other regional markets mostly show modes losses overnight with Korea and Japan up to 1% lower. USD/JPY extends the rebound off Friday’s low (currently 106.85 area). This is also the case for the USD vs the euro. EUR/USD returns below 1.24. Minutes of the previous RBA meeting show that the central bank keeps a neutral bias on rates. The Aussie dollar lost a few tick after the release, but AUD/USD trades again in the 0.7920 area.

There are no US eco data today. Markets will keep an eye at the $28bn 2-yr US Note auction. Will supply put further pressure on bond markets? German ZEW Economic expectations is forecast to ease from 20.4 to 16.0. EC consumer confidence is also expected slightly softer. The data will only of intraday significance at best. Tomorrow’s Fed Minutes are the next point of reference for global markets/USD trading. Global risk sentiment remains a factor of importance. Of late, the risk rebound went hand-in-hand with a USD decline. Will this pattern hold? This morning, risk sentiment is cautious and the dollar gains a few more ticks. From a technical point of view, EUR/USD 1.2555/98 (correction top, 62% retracement) is key resistance. A break would indicate more trouble for the dollar. Economic fundamentals don’t call for such a break, but USD sentiment remains fragile. We expect EUR/USD to hold the 1.2598/1.2206 band. A downside break would call of the ST USD alert.

UK CBI orders are expected slightly softer today at 11 from 14. UK Brexit Secretary Davis will give a speech in Vienna. One can expect him to hold a moderate tone. At the same time, there is some ado this morning on a UK plan to withhold Brexit payments if the UK doesn’t get a favourable trade deal. Of late, sterling hovered in the 0.88/0.89 area. We expect more consolidation in the 0.8690/0.8930 trading range. A break of the 0.8930 intermediate resistance proved difficult recently.

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KBC Market Research Desk

KBC Bank

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