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Forex today was a quiet affair in Asia, as markets remained unnerved amid ongoing Italian and Spanish political tensions and renewed jitters over global trade war after the US imposed metal tariffs on Canada, Mexico and the European Union (EU). The US dollar picked up bids versus its main competitors and staged a solid comeback, sending the USD index back above the 94 handle.

Broad-based US dollar comeback sent most majors into the red zone, with the Aussie having emerged the weakest, despite a positive surprise delivered by the Chinese Caixin manufacturing PMI data. Meanwhile, the USD/JPY pair regained ground above the 109 handle, as the Yen failed to benefit from the reduction in JGB purchases announced by the Bank of Japan (BoJ) earlier today.  

Amongst the related markets, the Asian equity markets traded mostly lower heading into the key US employment data while both oil and gold prices traded on the back foot, as markets digest the latest trade war news.

Main topics in Asia

UK’s David Davis developing border solution for Ireland

As reported by the Sun, the UK’s David Davis is developing a Brexit solution that would see the Ireland border debate resolved and put an end to the stalemate surrounding Brexit preparations.

Trump plays down odds of quick success with North Korea – Reuters

As reported by Reuters, US  President Donald Trump  downplayed the chances of reaching a quick resolution with North Korea in the upcoming off-and-on meeting between Trump and North Korea’s Kim Jong Un.

BOJ cuts purchases of JGBs maturing in 5-10 years

The  news  is crossing wires vi Reuters that Bank of Japan (BOJ) has reduced the purchases of Japanese Government Bond  (JGBs) maturing in 5-10 years to JPY 430 billion from the previous JPY 450 billion.

BOJ’s Kuroda: Fed policy normalization is a good thing for global economy

The comments from Bank of Japan (BOJ) governor Kuroda are crossing the wires via Reuters.

China’s Caixin Manufacturing PMI steadies at 51.1 in May, surprises positively

China’s  May Caixin manufacturing PMI came in at 51.1 vs. 51.0 expected and 51.1 last, with the production and total new orders both modestly higher.  

Germany’s Scholz: European Union would react “strongly and wisely” to US tariffs

Reuters is out with the latest comments from the  German  Finance Minister Scholz, as he responds to the US metal tariffs imposed on Canada, European Union (EU) and Mexico from G7 meeting.

Key Focus ahead

Today’s EUR calendar sees a raft of final manufacturing PMI reports from across the Euro area economies while the UK manufacturing PMI reading will be the main focus, dropping in at 0830 GMT.

Moving on, the crucial US labor market report will be published at 1230 GMT, with all eyes on the average hourly earnings for a fresh take on the US inflation and interest rates outlooks. Also, of note remains the Canadian manufacturing PMI, followed by the US ISM manufacturing PMI report among other minority reports.

Meanwhile, the Baker Hughes  Rig Counts could offer fresh trading impetus to the oil and Loonie traders, as G7 meeting will go on all through the day. Besides, the latest concerns about the increased prospects of a global trade war and Italian politics will remain a key driver across the fx board. Further, the Spanish PM Rajoy’s no-confidence vote will be closely eyed, with markets expecting Rajoy to fail in a no-confidence motion.  

Rajoy’s departure would trigger a second political crisis in southern Europe, further unnerving financial markets already shaken by the failed attempts to form a government in Italy.

EUR/USD: On the defensive despite the corrective rally, focus on US wage growth numbers

The common currency is not out of the woods yet, despite the 200-pip rally from the weekly low of 1.1510. A better-than-expected  US non-farm payrolls  and wage growth data would bolster the already bearish technical setup seen in the monthly chart and could derail the corrective rally.  

GBP/USD slips away from 1.33 as markets recoil on trade war rhetoric

With market sentiment souring, the Sterling heads into Friday with only Markit Manufacturing PMIs for May (forecast 53.5, prev. 53.9) on the docket at 08:30 GMT, Followed by the US NFP report at 12:30 GMT.  

Spain PM Mariano Rajoy faces defeat in Friday no-confidence vote – BBC

Spain’s Prime Minister Mariano Rajoy could be forced out of office as the Basque Nationalist Party (PNV), which holds a crucial five seats in parliament, has announced its support to the no-confidence vote, according to BBC.  

Nonfarm Payroll preview: volatility coming, but no lasting effect expected

The relevance of employment figures is tithed to upcoming central banks’ decisions, not only in America. The other leg, is, of course, inflation. With that in mind, one should wonder how much influence the outcome of the report could have on Fed’s future decisions.