EUR/USD holding tight range, stays north of 1.0770

KBC Market Research Desk KBC Bank

There was no obvious link between global FX (USD) trading and the developments on other markets yesterday. Initially EUR/USD held strong in the upper part half of the 1.08 figure as global sentiment improved after the oil-related sell-off earlier this week. Later, the dollar regained traction, even as equities rallied further. The move coincided with a rise in US yields, but we doubt this was a big factor as rate differentials didn't change much. Euro caution ahead of today's EU summit maybe played a role but we see the move mainly as order-driven, technical trade. EUR/USD closed at 1.0823 (from 1.0858). USD/JPY held recent very tight range to close the session at 107.75.

This morning, most Asian equity indices are trading in positive territory, but gains are modest compared to the WS rebound yesterday. Regional data were mixed (better than expected South Korean growth, but very week Japan PMI's). Still the impact on yen was very limited. The Aussie dollar declined temporary after an awful PMI release (services at 18!) but the move was reversed later on a broader USD decline. AUD/USD (0.6330) is holding recent consolidation pattern (0.6250/0.6450 area).

Today, the EMU & US preliminary PMI's and the US jobless claims are taking centre stage. The data will probably only illustrate the corona meltdown. Negative news might be slightly USD supportive, but we don't expect a big market reaction. EU leaders will again discuss a corona stimulus package. The EC made a proposal, but a political consensus on a detailed package (including the structure of funding) is unlikely. Germany decided on an additional domestic fiscal support (€10 bln). Question is whether this is a euro supportive. It only illustrates the fragmented crisis approach. EUR/USD is going nowhere. The 1.0770 support stays within reach, but hasn't been challenged of late. For now, we keep a neutral bias and don't anticipate a big break lower.

Sterling reversed part of Tuesday's sell-off yesterday as the risk-off eased and oil rebounded. EUR/GBP left behind the 0.88+ area to close the day at 0.8775. Today, the UK PMI's and the CBI data are expected to show further (steep) declines. The data probably won't be sterling supportive, but global sentiment probably will be more important for GBP trading rather than UK specific data. We keep the hypothesis that the EUR/GBP 0.8680/0.87 area should provide solid support.

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KBC Market Research Desk

KBC Bank

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