KBC Market Research Desk
KBC Bank
The global risk rebound continued yesterday. Investors look forward to a restart of the economy as the measures to contain the corona virus might gradually be lifted. However, the equity really again had only a modest impact on yields and on the big USD cross rates. Data including a 4.8% Q1 contraction of US activity, didn’t affect (USD) trading. The dollar traded tentatively lower and lost some further ground as chair Powell reiterated that the Fed will use all available tools to support the economy. EUR/USD closed at 1.0873. USD/JPY finished at 106.68.
This morning, Asian equities join the rally on WS. US futures extend gains on good earnings from the likes of Facebook. China PMI’s were mixed as poor export demand is weighing on manufacturing activity. The yuan rebounded (USD/CNY 7.0560) on hopes for further fiscal stimulus. The Aussie dollar is trading near a 7-week high (AUD/USD0.0.6560) as the RBA didn’t buy bonds under its QE program today. It apparently considers market conditions have substantially improved. The dollar hovers near recent lows (DXY 99.60 area, USD/JPY 106.60). EUR/USD is losing a few ticks (1.0860).
Today’s calendar contains the EMU Q1 GDP, the EMU CPI, the US jobless claims and the Chicago PMI. The data are interesting but probably have limited impact on (FX) markets. Global sentiment and the ECB policy meeting will be the main drivers for EUR/USD trading. The euro probably needs a strong signal policy makers will be able to provide a coordinated fiscal on monetary response. More stimulus (also monetary) is probably more supportive for the euro than a message that the ECB has already done a lot. Even so, the fiscal topic won’t be ‘solved’ today. In this context, it might remain difficult for the euro to fully profit from a (gradual) USD decline. This week, EUR/USD slipped briefly below 1.0770, but the downside test was rejected. More consolidation in the 1.0730/1.10 range might be on the cards. Of late, the 1.09 area already proved to be a quite though resistance. Will the combination of ECB stimulus and global risk-on finally trigger a (guarded) step higher?
Sterling trade weak at the start of the session, but the global risk-on put a floor for the UK currency. EUR/GBP gradually returned back lower in the 0.87 big figure. There are few UK data today. With no progress in the Brexit talks and the UK potentially lagging the global trend toward reopening the economy, we see more consolidative EUR/GBP price action near the 0.8680/0.87 support.
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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