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.

Under the radical blueprint, the province would operate a double hatted regime of European and British regulations at the same time, so it can trade freely with both. The Brexit Secretary is also drawing up a 10 mile-wide buffer zone the length of Northern Ireland’s  310 mile border with Ireland. Dubbed a ‘special economic zone’, it will be for local traders such as dairy farmers – who make up 90 per cent of the cross border traffic – and share the same trade rules as south of the border.

The two plans will together eradicate the need for any border check points, which is a major EU demand. 

 – The UK Sun

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Aussie loses its directional bias ahead of Friday’s NFP.
Market sentiment will be in the driver’s seat for today.

The AUD/USD wound up moving largely flat through Thursday, and the pair is trading quietly near 0.7570 heading through the overnight session rounding the corner into NFP Friday.

Thursday data for the Aussie failed to produce much action, and most of the data came in at expectations.

Friday brings US Non-Farm Payrolls, and markets are likely coiling ahead of the major event. little else is on the docket for the Aussie this week, though Chinese Manufacturing PMIS at 01:45 GMT could produce some knock-on volatility.

AUD/USD levels to watch

As noted by FXStreet’s own Valeria Bednarik, “the pair is losing its positive stance in the short-term, as its now piercing a bearish 200 SMA, although still above the 20 and 100 SMA, these last converging in a 10 pip’s range in the 0.7530 price zone. The Momentum indicator in the mentioned chart lacks directional strength within positive levels,  while the RSI indicator turned lower, but holds around 53.”

Support levels: 0.7535 0.7505 0.7470  

Resistance levels: 0.7590 0.7620 0.7660  

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Analysts at Nomura offered their GDP tracking update as follows.

Key Quotes:

“The increase in personal consumption expenditure in April was slightly stronger than expected.”

“Further, backward revisions suggest more momentum in personal spending growth in Q2. Thus, after rounding, we raised our Q2 real GDP tracking estimate by 0.3pp to 3.8% q-o-q saar.”

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Analysts at Scotiabank explained that Sterling has managed to grind steadily higher since Tuesday’s low near 1.32 and has progressed through minor trend resistance at 1.3310.

Key Quotes:

“A high close on the week will help relieve some of the recent pressure on the GBP but the broader trend in the market remains soft and the GBP is prone to weakness while the market remains below 1.3715, we feel.”

“The break under here late last month implies downside risks extending to the 1.31 area in the next few weeks.”

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Analysts at Westpac explained that European equities fell despite an apparent agreement to form a government in Italy and noted that the US allowed the waiver on metals tariffs to expire for most importers, sparking strong retaliatory measures from the EU and Canada. 

Key Quotes:

“Italy looks a lot closer to gaining a functioning coalition government now that an alternative finance minister in Giovanni Tria has been found, but the proposed Cabinet still has anti-Euro Savona as minister for European Affairs. The 5 Star/League proposals should be presented to President Mattarella later today and, if accepted, go to both houses for ratification confidence votes over the following week.

Italian 10 year bond yields dropped 9bp and Portugal’s by 7bp as concerns eased. EUR/USD rallied as high as 1.1724 but spent most of NY trade under 1.1700. Spanish PM Rajoy seems likely to lose a vote of no confidence on Friday. GBP/USD also rallied in the London morning before unwinding to no net change on the day, at 1.3290.

USD/JPY ranged sideways between 108.40 and 109.00, flat on the day. AUD also ranged sideways between 0.7555 and 0.7593. NZD rose slightly, probing above 0.7000. AUD/NZD slipped from 1.0850 to 1.0795, perhaps indicating the AUD’s greater sensitivity to global trade news, as the EU and Canada pledged to retaliate against the US steel and aluminium tariffs. Australia remains exempt.

Data had limited impact. Eurozone’s May CPI rose more than forecast but in line with recent national releases: core 1.1%y/y (f/c 1.0%) and the headline 1.9% (f/c 1.6%) was lifted by fuel costs. Eurozone April unemployment at 8.5% highlights that labour slack remains in the region.

The Fed’s preferred inflation measure, the PCE deflator, rose 0.2%mth in Apr, on both overall and the core measure, leaving annual inflation at 2.0% and 1.8% respectively.

The US 10yr treasury yield ranged from 2.82% to 2.88% but was net unchanged on the day at 2.85%. Two-year yields ranged sideways between 2.40% and 2.44%. Fed fund futures were steady, continuing to predict two hikes by year-end.”

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Analysts at Nomura explained that this week’s BOC meeting saw CAD rally after the Bank of Canada removed “cautious” from the monetary policy statement.

Key Quotes:

“This week’s BOC meeting saw CAD rally after the Bank of Canada removed “cautious” suggesting a slightly less data-dependent approach to policy normalisation and tipping the market towards a July hike. This should lead the market to price in a July hike with more conviction. Further, clarification of the reasoning behind the change will likely come from BOC officials ahead of the July meeting, which could provide further hawkish surprises. Tactically, we see opportunities for CAD longs against other commodity currencies into the July BOC meeting.”

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US President Trump slaps 25% tariffs on steel and 10% on aluminum imported from the European Union, Canada and Mexico.
The European Union, Canada and Mexico are getting ready to impose tariffs on US goods. Markets reacted negatively to the trade war. 

The three main US stock indices dropped on Thursday. The S&P 500 Index lost 0.69% to 2,705.27 while the Dow Jones Industrial Average dropped 1.02% to 24,415.84. The Nasdaq Composite Index fell 0.27% to 7,442.12. 

US President Donald Trump said that he is mposing steel and aluminum trade tariffs from the European Union, Canada and Mexico. The US tariffs will be set at 25% on steel and at 10% on aluminum as they will enter into effect on Friday. The markets reacted negatively to the news as the main US stock indices ended the day in the red. 

The European Union reacted by issuing a list of hundreds of US product which will be subject to trade tariffs by European consumers. Canada which the second biggest trade partner of the US said they would respond with “dollar for dollar” tariffs against US steel and aluminum exports. Meanwhile, Mexico, the third largest US trade partner, said it would impose tariffs on US goods such as flat steel, pork bellies, grapes, apples and cheese.

Over in Italy, it has been reported that the Five-Star Movement and the League are ready for setting up a new government. Giuseppe Conti will be the Prime Minister while eurosceptic Paolo Savona will be Minister for European affairs. Earlier in the week, stock indices worldwide sold-off on fears that Italy’s political crisis could lead to Italy leaving the Eurozone. 

Looking ahead, traders will focus on the Nonfarm Payrolls data on Friday.

Dow Jones daily chart

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The U.S. announces import tariffs on steel and aluminum products.
Italy’s new coalition government will be officially announced on Friday.
EUR/USD remains on track to end the choppy day in the green.

The EUR/USD pair fluctuated sharply on Thursday as investors tried to assess the potential impact of the latest developments, including Italian political leaders’ successful attempt to avoid another election in the autumn and the United States’ highly controversial decision to start imposing tariffs on steel and aluminum imports.

After advancing above the 1.17 handle, the EUR/USD pair lost its traction in the early NA session before making a late recovery. As of writing, the pair was trading at 1.1692, adding 30 pips, or 0.25%, on the day.

On Thursday, Italy’s League and 5-Star have finally reached an agreement to form a coalition government after naming economics professor Giovanni Tria as the candidate to be presented for the ministry of finance. However, news from the United States took the wind out of euro’s sails.

The U.S. Commerce Secretary Wilbur Ross stated that they were going to start imposing 25% steel and 10% aluminum tariffs on the European Union, Canada, and Mexico starting midnight tonight. The announcement didn’t allow investors to cheer the news from Italy as flight-to-safety, once again, dominated the trading action. The Dow Jones Industrial Average closed the day 1% lower and the S&P 500 erased 0.7%.

Meanwhile, today’s data from the euro area showed that the core-CPI increased 1.1% in May on a yearly basis to beat the market expectation of 1%. On the other hand, personal spending in the U.S. rose by 0.6% in April to surpass the market estimate of 0.4%. A separate report revealed that the core-PCE price index, the Fed’s preferred gauge of inflation, increased 0.2% and 1.8% on a monthly and annual basis respectively, reassuring another rate hike in June. Nonetheless, the US Dollar Index failed to make a decisive recovery ahead of tomorrow’s important NFP report and was last seen moving sideways a little below 94.

“According to analysts forecasts, the US is expected to have added 188K in the month, while the unemployment rate is seen steady at 3.9%. The lately more relevant wages’ growth figures are expected to post modest upticks expected to have risen by 0.2% monthly basis, up from 0.1% previously, while the year-on-year number is forecasted at 2.7% from 2.6% in April,”  writes Valeria Bednarik, American Chief Analyst at FXStreet, and adds:

“These numbers will fall short of being a shocker for the Federal Reserve, not good enough to increase chances of more rate hikes, neither too soft to make them step back.”

Technical levels to consider

1.1700 (psychological level) now could be seen as an interim resistance ahead of 1.1770 (20-DMA) and 1.1830 (May 22 high). On the downside, supports align at 1.1640 (daily low), 1.1600 (May 28 low) and 1.1510/00 (May 29 low/psychological level).

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