Forex Today: Risk-off Asia drives Yen higher, Focus on Italy/ Spain politics and ECB-speaks

The Yen was outperformed the G10 currencies, as risk-off sentiment extended into Asia this Tuesday amid ongoing political angst in Europe, particularly in Italy and Spain. As a result, Treasury yields were broadly sold-off, with the 10-year Treasury yields having hit six-week lows while oil prices also refreshed six-week lows. The commodity-linked Aussie and Kiwi traded on the back while Loonie was better bid amid news of the Canadian Trans Mountain pipeline deal.

While the Euro struggled to extend the bounce from multi-month troughs of 1.1608, Cable managed to regain the 1.33 handle heading into another data-light session ahead.

Main topics in Asia

US President Trump and Japan’s Abe agree to meet before US-N. Korea summit – Reuters

According to Reuters, the White House has confirmed that President Trump and Japanese President Shinzo Abe have agreed to meet in person prior to the upcoming US-North Korea summit on June 12th.

Brexiteers, Brussels both angered by EU budget extension with UK – The Times

European countries within the EU angered both hard-line Brexiteers and EU leaders in Brussels after inviting the UK to help determine the EU’s £1 trillion budget up to 2027, beyond Brexit and a date that “¦

Australia’s Fraser: global trade tensions could increase market volatility further

Australia’s Treasury Secretary, John Fraser, spoke on Australian economic conditions today, noting that Australian business conditions are at a record high.

Offshore Yuan rises to highest level since January 23

The offshore Yuan or USD/CNH rose to 6.4081 on Tuesday – the highest level since June 23.

US 10-year Treasury yield hit 6-week low in Asia

The yield on the 10-year benchmark US Treasury note fell to 2.88 percent in Asia, its lowest level since April 19, possibly in response to Italian uncertainty and a drop in oil prices.

Onshore Yuan weakens past 6.4/dollar for the first time since January 23

The onshore Yuan exchange rate weakened past 6.4 per dollar for the first time since January 23.  

Fed’s Bullard: Aggressive pace of rate hikes could invert yield curve

St Louis Federal Reserve (Fed) President James Bullard is out on the wires now, via Reuters, commenting on the rate hike outlook and inflation expectations in Tokyo.

Spanish PM to face confidence vote on Friday

Spanish Prime Minister Mariano Rajoy will face a vote of confidence on Friday, according to Reuters  News.                        

Key Focus ahead

Despite full markets returning, we have little of note to report in the European session, except for the Swiss trade figures and Eurozone money supply data. However, the political drama around Italy and Spain will continue to drive the fx moves in the session ahead. Among the central bankers’ speeches, we have the ECB policymakers Mersch and Lautenschlaeger up on the rostrum later today while the US Dallas Fed manufacturing index and CB consumer confidence data will offer some fresh trading impetus in the NA session ahead of the Reserve Bank of New Zealand’s (RBNZ) Financial Stability Report (FSR) due to out at 2100 GMT.

EUR/USD: Focus on Italy-German yield spread

The EUR/USD pair fell to 1.1607 on Monday – the lowest level since November 2017 as the Italy-German yield spread rose to a 5.5-year high of 232 basis points.  The common currency may continue to lose altitude today if the Italian-German yield spread rises further in the EUR-negative manner.  

GBP/USD can’t seem to shed the 1.33 handle as UK markets return from their long weekend

Despite the UK session’s return to the foray today, Tuesday is unlikely to bring much action for the  GBP/USD, with only the BRC Shop Price Index on the data docket, dropping late at 23:01 GMT (last reading -1%).

Italy: A Crisis in the making?

EURUSD  continues to buckle on haven USD flows given the heightened Italian political risk. , While near-term growth dynamics based on the recent run of weak economic data in the EU are also providing tailwinds for the USD.

RBNZ’s Financial Stability Report preview – Westpac

Westpac’s Analysts are out with their preview of the Reserve Bank of New Zealand’s (RBNZ) semi-annual Financial Stability Report (FSR) due to be reported later today at 2100 GMT, which will be followed by Governor Orr’s press conference at 2300 GMT.

China’s May official manufacturing PMI to remain unchanged at 51.4 – Nomura

Analysts at Nomura offer a brief preview on China’s official manufacturing PMI report due to be published this Thursday at 0100 GMT.