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  • Markets get set for some highly important data events, namely PMI’s, UK CPI and the FOMC minutes.
  • The dollar, for the most part, oscillating between the range of 93.2910-93.7340.
  • Geopolitics back up in the air, risk turns sour late in NY.

As the markets get set for some highly important data events, namely PMI’s, UK CPI and the FOMC minutes, Forex today was pretty confined with the dollar, for the most part, oscillating between the range of 93.2910-93.7340 while US 10 year yields rose from 3.05% to 3.08% before slipping back to 3.06%.  

There was a lack of data from the US session and European markets were in the hands of optimists where Italian 10-year rates dropped by 7 bps while markets figured the Italian’s will not be able to get over the EU’s hurdles when it comes to the proposed spending plan – nor was it clear that the President will endorse the proposed populist government.  

Meanwhile, for the US session, moves were largely driven by geopolitical developments and risk suddenly turned sour late in the session with the benchmarks ending near their lows of the day as uncertainty over trade policy and other geopolitical issues remained high – (ZTE and North Korean tensions).

Key currency action

As for other currencies, the euro hurdled the hourly moving averages when the Italian BTP yields contracted on headlines that the Italian government may find the EU obstacles to its spending plans too high. However, there was then a newswire that the eurosceptic Savona would be named as the economic minister, pressuring the euro once again and sending Italian yields on a round trip. The single currency takes a trip back to below 1.1770 and drifts sideways in a narrow chop into the NY close at 1.1778.

Sterling has been on a similar trajectory as the euro vs the dollar on Tuesday, bid up through the hourly MAs in an early European spike to a high of 1.3491, (the hawkish Vlieghe steer), and a return ticket back to 1.3413, (a few pips shy of Asia low of 1.3412). Headwinds from Brexit will eventually fade, according to the MPC member Vlieghe who expects slightly more rate hikes from the BoE over the next 3 years than what markets do. Cable was ending the NY shift at 1.3425, -0.04% within an NY range of between 1.3466-1.3414. The cross ended the day at 0.8722 and lower by -0.14% as political angst and pressures switch to the’ left-hand side’.  

The yen was moving around 111 the figure in a tight range of between 110.79/18 the early European high. Sellers emerged there and send the pair down to the aforementioned lows in late European trade from where bargain hunters emerged and sent the pair back to challenge the 111 handle with a NY morning session score of 111.07 the high. The consensus is that the pair will remain heavy while below the presumed option barrier level at 111.50 and through the key descending resistance level around 111.10/40.

As for the commodity complex, oil consolidates the recent highs as noise wires suggest that OPEC will boost production to cover a decline in Venezuela and Iran, (However, even if OPEC decided to ease the output restrictions in June it may take three to four months to put into effect). Meanwhile, gold can’t get off the floor but copper got a boost in Shanghai and extended the upside in London where highs were faded in NY to the support of the 21-hr SMA. AUD/USD drifted higher in early NY and broke the European high of 0.9706. AUD/USD was capped at 0.9715 and closed near to the two-week highs. NZ /USD also made a two-week high at 0.6975 before dropping back to 0.6930.  

Key notes from US session:

  • Funda-FX wrap: N.Korea /US summit losing traction
  • Wall Street stocks: Dow Jones falls nearly 200 points as Trump is not satisfied with China trade talks

Key events ahead:

Analysts at Westpac noted the key events ahead as follows:  

The only Australian data of note for the week is due at  11:30am  Syd/9:30am Sing/HK: Q1 construction work done. This is usually a helpful guide to the construction component of GDP (due  6 June) so is worth watching. But in recent quarters, the headline number has been severely distorted by an imported LNG platform: Q3 17 was +16.6%qtr, Q4 17 was -19.4%. If the distortions have passed, then we should see a gain of around 1%. Public infrastructure should be a positive, while private engineering should be a negative, as LNG projects are completed.

RBA governor Lowe speaks on “Australia’s Deepening Economic Relationship with China: Opportunities and Risks” at the Australia-China Relations Institute, Sydney, from  6:05pmSyd/4:05pm Sing/HK. Malaysia and Singapore release April CPI, with inflation low in both countries.”