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FX today experienced cautious sentiment, as risk appetite soured in Wednesday’s Asian trading amid renewed US-China trade woes on the fresh reports that the US is considering blacklisting up to 5 Chinese surveillance companies. The news overshadowed the optimism fuelled by Huawei’s reprieve. The JPY bulls fought back control as a flight to safety returned that sent USD/JPY back below 110.50 levels. However, the downside appeared limited amid weak Japanese exports data and dovish comments from the BOJ board member Harada.

The Antipodeans traded on the defensive amid dismal fundamentals and softer risk tones. The AUD/USD pair remained offered near 0.6880 levels, as downbeat Australian construction Output and Westpac Leading Index data weighed. Meanwhile, the Kiwi breached the 0.6500 support, in sympathy with the Aussie and the drop in oil prices. The black gold dropped on Saudi comments and rising US oil supplies. Despite the oil price weakness, the Loonie wavered in a tight range around the 1.34 handle. Among other commodities, gold futures on Comex traded modestly flat near 1273, as all eyes remain on the Fed minutes for fresh direction.

Amongst the European currencies, the EUR/USD pair traded weaker near 1.1150 levels while the Cable remained supported above the 1.2700 level heading into the UK CPI report.  

Main Topics in Asia

China’s Ambassador to the US: China remains ready to continue trade talks with US colleagues

USTR Lighthizer to talk with EU, Japan amid concerns over Chinese subsidies – Reuters

Japan: Topic of auto export restriction to US not raised during talks – Jiji

Japan’s Suga: Auto import restriction by US would adversely impact us, global economy

UK PM May faces new coup after gamble to force deal through by offering second referendum backfired – The Sun

New Zealand retail sales rises 0.7% q/q in Q1 2019, beats estimates

Fed’s Bullard: Fed may have overdone it with December hike

Japan manufacturers’ morale boosted in May – Reuters Tankan

Japan exports fall for fifth month in April amid US-China trade war – Reuters

US Pres. Trump: USMCA must be passed before any infrastructure bill

Australia’s Q1 construction work drops 1.9%, a negative surprise (Aussie keeps lows)

BOJ’s Harada: There is a risk declines in exports, output could spread to employment, consumption

Asian stocks tentative as Hikvison news overshadows Huawei reprieve

AUD-positive news: Dalian iron ore hits record high

Key Focus Ahead

Markets buckle up for a busy EUR calendar today, with the UK inflation data for April likely to headline at 0830 GMT. The UK Consumer Price Index (CPI) is seen accelerating 2.2% y/y in April while the core figures are also seen a tad firmer at 1.9% y/y in the reported month. The Producer Price Index (PPI), Retail Price Index and Public Sector Net Borrowing data will be also published parallelly. Meanwhile, the EUR docket remains data-empty, as all eyes remain on the ECB President Draghi’s speech due at 0730 GMT and outgoing Chief Economist Praet’s speech at 0930 GMT. On the Brexit front, PM May will present statement providing details of her 10-point Brexit proposal during the Wednesday’s parliament session.

In the NA session, the Canadian retail sales data will drop in at 1230 GMT and will be closely eyed amid a lack of significant news from the US docket. Also, the EIA crude stockpiles report will draw some attention for fresh oil trades. The main event risk for today remains the FOMC latest meeting’s minutes that will be published at 1800 GMT. Any dovish title revealed in the minutes amid escalating US-China trade woes would trigger an extensive pullback in the US dollar from the recent peaks.  

EUR/USD: Two-way business ahead of Draghi speech

The EUR may remain under pressure today if the yield differentials continue to widen in favor of the US dollar. Further, riskier assets will likely remain on the defensive  on reports that the Trump administration is planning to blacklist China’s Hikvision – a major surveillance technology firm.

GBP/USD: Pullback moves active ahead of UK CPI, PM May’s statement

Oversold RSI conditions trigger the  GBP/USD  pair’s recovery to 1.2720 as traders await monthly inflation data and PM May’s statement in the UK parliament while heading into the London open on Wednesday. ´

UK  CPI  preview: Higher inflation may provide a selling opportunity on GBP/USD

According to the economic calendar, the headline consumer price index is expected to advance from 1.9% year over year in March to 2.2% in April, crossing above the central bank’s target of 2%. Core inflation is also set to accelerate, from 1.8% to 1.9% this month.

FOMC Minutes Preview: Inflation, inflation, where’s the Fed’s inflation?

The coverage in the minutes around the inflation discussion will be its most important market focus. How many governors expressed concern? Were rate hikes broached as an eventuality if inflation continues to be weak?