• Rates: Risk sentiment to set the tone for trading
    Asian stock markets join Friday’s US rally backed by supportive test results in a drug to treat Covid-19. Today’s empty eco calendar suggests that risk sentiment will remain in the driver’s seat to guide other markets. Attention turns to US eco data, the ECB meetings, the EU Summit and Chinese Q2 growth data later this week.
  • Currencies: EUR/USD still captured in buy-on-dips pattern
    EUR/USD last week found solid support in the 1.1255 area. The dollar remains in the defensive this morning as markets look rather hopeful at upcoming data and events later this week. Sterling traded rather constructive last week. EUR/GBP returned to the previous 0.8865/0.90 consolidation pattern.

The Sunrise Headlines

  • Wall Street finished the week higher following reports of Gilead’s Remdesivir proving its effectiveness. The DJI (+1.44%) outperformed. Asian markets follow in lockstep with Japan and China (> +2%) taking the lead.
  • The US announced 25% tariffs on about $1.3bn worth of French goods, including makeup and hand bags but not wine and cheese as was proposed earlier as France held firm on plans to collect a digital tax targeting big tech.
  • The UK government has started to explore options to deal with the pile of corporate debt after companies took out state-backed loans to survive the coronacrisis. One of the possibilities is swapping debt into equity stakes.
  • Incumbent Andrzej Duda holds a narrow lead over his contestant Trzaskowski in the Polish presidential elections. According to exit polls, Duda is on course to win 50.8% of the votes but come with a 2% error margin.
  • US president Trump said a phase two trade deal with China isn’t under consideration right now, citing the “severely damaged” relationship with China because of its handling of the pandemic, Hong Kong and human right abuse.
  • OPEC+ delegates said the oil cartel is leaning towards gradually easing the historical output curbs next month. Production cuts currently amount to 9.6 mln b/d but could be tapered to 7.7 mln starting in August.
  • Today’s economic calendar is irrelevant for markets. The eco week is backloaded with US retail sales, Chinese Q2 growth, the ECB and the special EU summit all due at the end of the week. Q2 earnings season kicks off tomorrow

Currencies: EUR/USD Still Captured In Buy-On-Dips Pattern

EUR/USD still captured in buy-on-dips pattern

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Trading in the major FX cross rates experienced another sentiment driven session on Friday as there were few US or EMU data. Sentiment was rather cautious in Asia and at the start in Europe, but improved later amongst other on positive headlines of a cure against the virus. EUR/USD started near week lows in the 1.1260 area, but the level held, putting a floor for a gradual rebound as the dollar ceded ground across the board. Later, the USD decline was partially reversed as US yields rebounded after the recent flattening move. Still, the USD closed with modest losses. The TW dollar finished 96.52. EUR/USD closed at 1.1300. USD/JPY declined further despite the risk-on (close 106.93 vs 107.20)

This morning, Asian equities are trading with solid gains, China and Japan outperforming. Investors are looking forward to the first earnings to be reported this week and key Chinese data including the Q2 GDP on Thursday. The dollar is trading in the defensive. The yuan remains well bid, with USD/CNY again trading below the 7 handle. USD/JPY is holding stable in the 106.90 area. EUR/USD is trending higher off the 1.13 area (currently 1.1330 area).

Today’s eco calendar is still thin, but this will change later this week (cf supra). Markets are quite comfortable that especially Chinese data will confirm that the recovery over there is on track. Earnings are a wildcard. The impact of the data/earnings will still mainly go via their impact on global sentiment. At least for now, there is no indication it will trigger a big setback in the rally of risky assets. This positive bias keeps the USD in the defensive at the start of the week. Regarding EUR/USD, last week’s price action wasn’t spectacular, but in the end even intermediate support did their job quite well. For now we see EUR/USD still captured cautious buy-on-dips pattern. First support comes in at 1.1255. 1.1185/61 is key to keep a constructive bias. A break above the 1.1371/1.1422 area would further improve the ST picture. Keep an eye at the headlines on the EU summit later this week.

Sterling traded rather constructive last week. The move was mainly technical in nature as the UK currency to some extent decoupled for the intraday swings in global sentiment. This week, UK data will give in extenso an update on the UK economy. After declining below 0.90, EUR/GBP again entered precious sideways consolidation pattern with a bottom in the 0.8865 area. We keep a neutral bias on sterling ST.

EUR/USD: intermediate support near 1.1255 proves quite solid

 

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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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