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The overnight optimism over the US-China trade talks faded in Friday’s Asian trading  after reports hit the wires that the trade talks saw little progress and the higher US tariffs on the Chinese imports kicked-in. The safe-haven Yen picked-up fresh bids amid a drop in the US S&P 500 futures on renewed trade jitters, dragging the USD/JPY pair back towards the 109.50 level. The spot struggled to hold the corrective bounce above the 110.00 seen in early trades.

Meanwhile, the risk currencies, the Antipodeans, also felt the heat of the looming trade war risks and struggled to extend their corrective bounce. The Aussie capped its bounce near 0.7020 levels and traded near 0.70 handle almost throughout this session, weighed further by the RBA’s growth and inflation outlook downgrade in its quarterly Statement on Monetary Policy (SoMP). The Kiwi also kept its range play intact around the 0.66 handle amid a pullback in oil prices. The Loonie also staged a comeback and reverted towards daily highs, as oil prices reversed from highs amid deteriorating risk sentiment.    

Amongst the European currencies, the EUR/USD pair traded well bid above the 1.12 handle, benefiting somewhat from the advance in gold prices. The Cable turned negative and tested the 1.3000 level heading into further cross-party Brexit talks and day 2 of US-China trade negotiations.

Main Topics in Asia

US-China trade updates

Trump, Mnuchin and Lighthizer talking trade talk progress – Fox

US-China talks are over for this evening – RTRS

First day of US-China trade talks end; Trump’s tariff hike set to take effect – RTRS reporting

Watch risk here: VP Liu said nothing more he can do … Now down to Xi and Trump

US-China trade talks will extend beyond the time when the US starts to raise tariffs – Global Times

No plan for the President to meet with Chinese Vice Premier Liu He – Fox News

White House: Meeting with China will continue Friday morning US time

Asian stocks rise as US and China extend talks beyond tariff deadline

Sources: US tariff increase to go ahead at 0401 GMT Friday

Sources: US – China trade talk saw little progress – Bloomberg

Other Headlines

BoJ April meeting summary of opinions: Continues to be risk Japan may slide into recession – RTRS

RBA Monetary Policy Statement: Unemployment at 5% out to Dec 2020, downgrades growth and inflation outlook

Asian stocks rise as US and China extend talks beyond tariff deadline

Gold remains flat near $1,285 amid trade-led risk-on/risk-off

Key Focus Ahead

The US-China trade developments will continue to overshadow the impact of the economic releases in the session, despite being a heavy-data showing, all eyes remain on the Day 2 of trade talks between the Chinese Vice-Premier Liu He and the US top diplomats.   The EUR calendar will kick-off with the German trade and current account data at 0600 GMT. From the UK docket, we have a raft of key macro releases due at 0830 GMT, including the GDP figures, trade balance and industrial production.

Meanwhile, the NA calendar also remains a hectic one, with the US inflation data, due at 1230 GMT, to headline.  At the same time, the Canadian jobs and building permits data will be also reported. Later on, the Baker Hughes oil rigs count data will drop in at 1700 GMT, soon followed by the US monthly budget statement at 1800 GMT.

We also have a lot of key central bankers speaking later today, as listed below.

0730 GMT: ECB’s Lautenschlaeger

1230 GMT: Fed’s Brainard

1305 GMT: Fed’s Bostic

1430 GMT ECB’s Coeure

EUR/USD: Bid above 1.12 as US tariffs kick in, focus on EUR/JPY ahead of US CPI

With the US’ decision to raise tariffs, the probability of a breakthrough in negotiations has dropped. As a result, the European markets will likely trade in the red. So,  EUR/USD may have a tough time climbing the previous day’s high of 1.1251.

GBP/USD extends latest recovery ahead of UK GDP, US CPI

Given the trade talks at Washington being extended to the next day,  economic calendar  offering the UK GDP and the US CPI could regain its importance among global traders.

Deal or No Deal for China? Answer will Set the Course for FX

Investors are nervous that this time, President Trump is serious about raising tariffs on essentially all Chinese goods to 25%.

UK GDP Preview: Expectations look too low and Sterling may surge

How hard has Brexit uncertainty hit the UK economy? Economists believe  that it had a substantial adverse impact on growth, and this explains the low expectations.  

US CPI Preview: Higher is better

Core inflation is expected to rise by 0.2% in April following  March’s 0.1% gain.  Annual  core inflation is projected to reach 2.1%  from 2.0% prior.  

Canadian jobs preview: The odds are stacked against the C$

Has rapid job growth come to an end in Canada? Loonie traders will get an answer, and  USD/CAD  will react solely to this release, as the US  Non-Farm Payrolls  has already been published.