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Currencies: Soft ECB Speak Caps EUR/USD Topside

  • Rates: US CPI won’t shift thinking about next week’s FOMC
    Focus turns to US CPI today. We don’t think that the outcome, even in case of a disappointment, will dramatically shift expectations about next week’s Fed meeting. Greek bonds could outperform after yesterday’s Eurogroup meeting, while SLOVGB’s might underperform on the developing political crisis. BTP auctions are a good test for appetite.
  • Currencies: Soft ECB speak caps EUR/USD topside
    The dollar was still looking for a clear direction yesterday. Soft ECB comments prevented a sustained rise in EUR/USD. The US CPI takes center stage today. A positive surprise might support the dollar, but it is not sure that this surprise will already come this month. Sterling is trading off recent lows as Brexit is (temporary) off the radar.

The Sunrise Headlines

US stock markets parted ways yesterday with only Nasdaq ending with gains. Risk sentiment on Asian stock markets is mixed overnight with China underperforming (-0.5%).

President Trump blocked Broadcom’s $117 bn hostile bid for Qualcomm, capping moves by the Trump administration reflecting concerns about an intensifying arms race between the US and China over advanced technologies.

Slovakia’s government edged towards break-up after one of the junior parties in the ruling coalition of PM Fico called for early elections to stem the furore over the murder of an investigative journalist. (FT)

China is merging its banking and insurance regulators and creating a slew of ministries including a new agricultural and rural affairs ministry as part of the biggest government shake-up in years

EMU creditors will disburse new loans to Greece this month and are working on debt relief measures, the head of the Eurogroup Centeno said. Those moves should help strengthen the Greek recovery.

Japan’s FM Aso is considering skipping a G-20 finance leaders’ gathering in Buenos Aires next week, Japanese media reported, as a suspected cover-up of a cronyism scandal paralyses parliament and puts his job on the line.

Today’s eco calendar contains US NFIB small business optimism and US CPI data. The Netherlands, Italy and the US tap the bond market

Currencies: Soft ECB Speak Caps EUR/USD Topside

Soft ECB speak caps EUR/USD topside

Risk sentiment stayed constructive yesterday after Friday’s almost perfect payrolls. Still, the dollar didn’t find a clear direction. EUR/USD hovered in the lower half of the 1.23 big figure. The topside in EUR/USD is apparently rather well protected as the market assumes that any ECB normalization will develop in a very gradual way. This was confirmed by soft comments from ECB Smets and Coeuré. EUR/USD closed the day at 1.2334. USD/JPY held in the mid 106 area. Overnight, Asian equities are trading mixed. Changes in the major indices are modest. Markets don’t give too much weight to the political tensions in Japan. The Nikkei regained initial losses and this ‘propelled’ USD/JPY. The dollar also regains a few ticks against the euro. The Aussie dollar is holding near it ST top (0.7875 area) on constructive eco data.

Today, the US NFIB small business confidence is interesting, but the focus will be on the February US CPI data. The consensus expects 0.2% M/M and 2.2% Y/Y (from 2.1%) for headline CPI. The core reading is expected unchanged at 1.8% Y/Y. We don’t see much reason for a big positive surprise for the February data. This evening, the US treasury sells 30-yr bonds. Yesterday’s sale of 10-y Treasuries was OK. For now, US data don’t provide much new guidance for the dollar (and for interest rates) going into the March 21 Fed meeting. We also monitor comments from ECB members. In the wake of last week’s ECB meeting (Draghi’s comments were perceived soft), comments of ECB’s Smets and Coeuré pointed in the same direction. So, ST a further decline in EUR/USD maybe has to come from the euro side of the story, rather than from the USD. Especially as the market is probably still positioned a bit euro long. The US tariffs/trade debate remains a wildcard.

The post ECB price action suggests that the EUR/USD topside is rather well protected. Constructive US eco data might cause a renewed EUR/USD test of the 1.2155 area.

Sterling traded with a cautiously positive bias yesterday. There are again no UK eco data today. Markets keep an eye at Fin Min Hammond’s half year public finance update. Less focus on austerity might be a slightly positive for sterling, but it won’t be a game-changer. For now there is no trigger for a clear directional move in EUR/GBP. Some further range trading near current levels might be in the cards.

KBC Bank
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