Analysts at ANZ noted the bounce back in US data from overnight.

Key Quotes:

“April personal spending was upbeat at 0.6%, while real personal spending rose 0.4%.”

“The data should help allay fears of a more protracted slowdown in consumption after yesterday’s weaker Q1 result.”

“Personal income rose 0.3%.”

“The core PCE deflator was at 1.8% y/y in April, unchanged from a downwardly revised 1.8%.”

“Initial and continuing jobless claims declined.”

“The Chicago PMI was strong; the Beige Book stressed the tightness of the labour market.”

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Analysts at Nomura say it feels like it’s time to dust off the euro-area crisis playbook from the 2010-12 period. 

Key Quotes:

“However, there are a number of key differences this time – on the positive side, imbalances within the euro area have reduced substantially (Italy now runs a current account surplus) and mechanisms are in place to limit contagion risk. However, the political backdrop is more challenging with the rise of anti-establishment parties across the western world.”

“Euro break-up fears are clearly re-emerging – this week we saw Italian spreads widen to levels not seen since 2013. Despite the retracement over the last 24 hours, spreads remain at elevated levels.”

“As flagged in Italian drama – a 5 star review, Italy concerns are unlikely to dissipate soon. We expect spreads to remain wide for some time ahead. We now expect a slower pace of normalisation from the ECB (with hikes coming in September 2019) and have closed out of our long euro positions against USD and CHF, with euro crosses highly sensitive to Italy risks for now.”

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GBP/JPY bear trend is intact as it is trading below the key 144.98 swing low established on March 2.
However a strong bull breakout above 144.98 could see bulls trying a reversal attempt and target the 146.20 supply level to the upside.

GBP/JPY 15-minute chart

Spot rate:                   144.60
Relative change:       -0.05%     
High:                           145.31
Low:                            144.12

Trend:                         Bearish

Support 1:                 144.12 current Thursday’s low               
Support 2:                 143.20 May 29 low                              
Support 3:                 141.19 September 5, 2017 low    

Resistance 1:            144.98 March 2 swing low, key level
Resistance 2:            146.20 key supply level                                  
Resistance 3:            147.53 May 8 low

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Analysts at ANZ explained that Steel and aluminium tariffs are back. 

Key Quotes:

“President Trump “has decided in the case of Canada, Mexico and the European Union not to extend the exemptions and therefore they will be placed under the 25% tariff on steel and the 10% tariff on aluminium effective at midnight tonight,” Wilbur Ross said overnight.”

“The EU said they would take steps to retaliate and Mexico said they would impose duties on everything from US flat steel to cheese. Canada has said its own tariff response will be “dollar for dollar”.”

“Adding insult to injury, the US blocked the consensus OECD statement once again. There is typically a blanket statement that outlines common goals for the multilateral trading system.”

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The Five Star movement and League parties have reached an agreement on a government.
Subdued commodity-FX space relative to the implementation of tariffs so far.

NZD/USD has been consolidating in a previously congested area of support, piercing the 200-4hr SMA at 0.7014 in a relatively subdued commodity-FX space relative to the implementation of tariffs against EU, Mexico, and Canada.

“The ‘will they or won’t they’ on US tariffs has flipped backed to ‘will’. However, there have been only modest currency impacts so far, perhaps as Italy looks as though it has managed to form a more euro-friendly government,” explained analysts at ANZ:

“The kiwi is proving resilient and looks biased higher near-term. However, the extent of cross-currents that exist makes it difficult to believe that any rally will be substantial.”

The Five Star movement and League parties have reached an agreement on a government

Meanwhile, the Italian situation is starting to slip backstage now that it appears that  The Five Star movement and League parties have reached an agreement on a government. The latest is that  Giovanni Tria is the leading candidate for finance minister, Conte is expected to be Premier and this is excluding the far-right Brothers of Italy, which had campaigned with League in a centre-right alliance, from the team. Conte is expected to be Premier.

For the day ahead, we have Consumer Confidence and the terms of trade as well as the Performance of Manufacturing and PMI indexes in Australia, and China’s manufacturing PMI as data risk in Asia.

NZD/USD levels

Key support is located at 0.6880 while resistance is located at 0.7000, NZD/USD is trading around the 200-month moving average resistance at 0.6994 and weekly technicals remain bearish. Support comes in from the 21-hr SMA while RSIs are biased to the downside although turning slightly higher with this strong short squeeze. A break of the 200-M SMA opens 0.7000 and then 0.7030, early 2017 Dec tops and just above the day’s high of 0.7024. 0.7440 comes as key upside target as the Jan tops. Below 0.6850, 0.6780 comes as next downside target meeting the lows of mid-Nov 2017.

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Mexican economy minister has crossed the wires in the last hour to explain the countermeasures they were taking in response to the United States’ decision to impose tariffs on steel and aluminum imports from Mexico.

Key quotes (via Reuters)

Mexico will impose equivalent measures on diverse products in reaction to US steel and aluminum tariffs.
The measures will be in place until the US government eliminates the tariffs.
The equivalent measures will affect several steel products, some pork and other agricultural products.
Tariffs affect $4 bln worth of trade between Mexico and the US.

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Despite today’s weaker than expected GDP data from Canada, analysts at Wells Fargo, point out that recent data supports a positive outlook.

Key Quotes:

“Policymakers at the Bank of Canada (BoC) have long anticipated a pivot to business investment and exports as drivers of Canadian growth. However, this shift remained elusive in the first quarter, as real GDP growth slowed to a 1.3 percent annualized pace from 1.7 percent in Q4. To be fair, exports did increase during the period, but imports grew more; the result was a drag of more than a full percentage point on headline growth.”

“After starting 2017 on a tear, Canadian GDP growth slowed in the second half of 2017 and the first quarter of 2018. Deceleration in household spending, declines residential investment and slower export growth contributed to the slight downshift in Q1 GDP growth.”

“Recent economic data support the case for a positive outlook on the Canadian economy, as laid out by the BoC in their most recent policy statement. Higher oil prices and service-sector strength helped lift all provincial economic boats in 2017, putting the country on solid footing from coast to coast.”

“We expect that Q1 will be the weakest quarter for growth in 2018. Nevertheless, we remain wary about risks posed by high levels of household debt, a potential slowdown in residential investment and geopolitical concerns (especially the threat of new tariffs from the United States).”

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Analysts at Nordea Markets, keep a negative bias on the Brazilian real in the short-term but they expect USD/BRL to head lower in 2019.

Key Quotes:

“The Brazilian real was hit markedly in April and May and is currently trading at its weakest levels since Q1 2016 against the dollar. The depreciation pressures came on the back of the rising dollar, fear of contagion from the currency crisis in Argentina and domestic politics. We expect these factors to have a negative impact on the currency in the coming months.”

“The recent BRL depreciation means that the BCB will likely postpone its next rate hike until the end of 2018. Given also the political uncertainty ahead of the presidential election in October, we keep our short-term negative bias on the BRL.”

“In 2019 we expect USD/BRL to gradually decrease as the political uncertainty diminishes somewhat, the BCB begins a new hiking cycle and the USD loses strength.”


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According to Krishen Rangasamy, analyst at National Bank of Canada, despite today’s soft GDP reading, Canadian real GDP remains on track to grow around 2.2% in 2018.

Key Quotes:

“Canada’s GDP expanded at an annualized pace of just 1.3% in the first quarter of 2018. But there were upward revisions to Q2 and Q3 of last year, pushing up slightly the growth print for 2017 as a whole to 3.05% (from 3.00%).”

“The Canadian GDP results were weaker than expected. While consumption spending contributed to real GDP, its growth was the weakest in three years, likely a result of moderation in employment creation which hammered real disposable incomes during Q1. Fading housing wealth effects amidst softening home prices, may also have
weighed on spending.”

“The large drag from trade was due to surging imports, the latter reflecting rising business investment which is a positive for GDP and potential GDP as well. Last but not least, a decent handoff from March ─ real GDP grew 0.3% unannualized in that month ─ warrants optimism for Q2.”

“All in all, Canada’s real GDP remains on track to grow about 2.2% this year, although that assumes employment and consumption spending growth bounce back.”

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