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Geo-Politics Holds Center Stage, with the USD and EUR in Focus

The Asian markets recoiled again this morning, as Trump added to investor woes, leaving today’s economic data as an afterthought as focus moves on to Italy, the Oval Office and the Bank of Canada.

Earlier in the Day:

Economic data released through the Asian session this morning included April building consent numbers out of New Zealand, Japan’s retail sales figures and April building approval numbers out of Australia.

For the Kiwi Dollar, building consents fell by 3.7%, partially reversing March’s downwardly revised 13% rise.

The Kiwi Dollar moved from $0.69007 to $0.68921 upon release of the figures before recovering to $0.69 levels at the time of writing, the Kiwi Dollar up 0.10% to $0.6910.

For the Japanese Yen, retail sales finally provide some good news for the Japanese economy, with April sales up 1.6% year-on-year, coming in ahead of a forecasted 0.9% following March’s 1% rise.

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The Japanese Yen moved from ¥108.337 to ¥108.483 against the Dollar, upon release of the figures, before easing to ¥108.63 at the time of writing, up 0.13% for the morning, with risk off sentiment driving the Yen through the morning.

For the Aussie Dollar, building approvals fell by 5% in April, which was worse than a forecasted 3% fall, while more than reversing March’s upwardly revised 3.5% rise.

The 5% fall was attributed to an 11.5% slide in approvals for private sector dwellings excluding houses, private sector houses rising by 0.1% in April, according to figures released by the ABS.

The Aussie Dollar moved from $0.74934 to $0.75003 upon release of the figures, before easing back to $0.7496 at the time of writing, down 0.13% for the morning, the soft numbers another reason for the RBA to be concerned over the construction sector.

In the equity markets, the risk off sentiment continued to jolt the markets, with concerns over the future of the Eurozone and renewed trade war jitters doing the damage, the latest Oval Office flip flop on trade tariffs overnight putting back on the table the original planned tariff of $50bn on Chinese imported goods.

The Nikkei was down 1.79% at the time of writing, the stronger Yen contributing to the losses, with the CSI300 and Hang Seng down 1.53% and 1.3% respectively, while the ASX200 was down 0.51%, as the markets continued to respond to the plethora of geo-political risk drivers currently circling overhead, with Iran and North Korea certainly not to be forgotten.

The Day Ahead:

For the EUR, it’s a busy day ahead on the economic calendar, with key stats scheduled through the day including German and French April retail sales figures, 2nd estimate GDP numbers out of France, May’s prelim inflation figures out of Spain and Germany and May unemployment numbers out of Germany.

Barring any deviation in the 2nd estimate GDP numbers out of France, focus will be on the rest of the numbers, with any pickup in inflation likely to provide the EUR with some much needed support, though market sentiment towards Italy and Spain and possible ramifications for the Eurozone will likely overshadow the numbers this morning.

All eyes will be on the presidential palace, with talks between caretaker Prime Minister Cottarelli and President Mattarella expected to resume in a bid to deliver a cabinet and ease some of the market panic that set in at the start of the week, though the call for fresh elections and a rise in anti-Establishment support following the collapse of the Five Star – League coalition on the weekend will continue to be a worry.

At the time of writing, the EUR was down 0.04% to $1.1535, European politics continuing to take centre stage for the EUR through the day.

For the Pound, there are no material stats scheduled for release through the day, leaving focus elsewhere, though negative sentiment towards Brexit negotiations remains a negative for the Pound, with talks of a second EU Referendum doing the rounds again.

The Pound was up 0.04% to $1.3254 at the time of writing, with Tuesday’s slide a reminder of just how much influence sentiment towards Brexit has on the Pound, irrespective of monetary policy.

Across the Pond, key stats through the day include May’s ADP nonfarm employment change figures, 2nd estimate GDP numbers for the 1st quarter and April trade figures.

Sentiment towards the U.S economy has improved through the 2nd quarter, but with the U.S administration’s threat of introducing the tariffs on $50bn worth of Chinese goods ahead of scheduled weekend trade talks, the data may well end up taking a backseat, with the markets likely to be more interested in tomorrow’s inflation numbers and wage growth figures due out on Friday.

At the time of writing, the Dollar Spot Index was up 0.07% to 94.885, easing back from morning highs, with the softer EUR having provided the Dollar with upside through the early part of the day.

Across the border, it’s a big day for the Loonie, which pulled back to $1.30 levels on Tuesday, with market focus being on the Bank of Canada’s interest rate decision and, more importantly, the rate statement, few if any expecting the BoC to make a move this afternoon.

Ahead of the May decision, 1st quarter current account and April RMPI numbers will be in focus, though we would expect any moves in response to the data to be short lived.

At the time of writing, the Loonie was down 0.08% to C$1.3029 against the U.S Dollar, with any suggestions of an end to rate hikes for the year likely to weigh more heavily later in the day, the Loonie having already lost its Crude Oil safety blanket.

This article was originally posted on FX Empire

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