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Tensions will be running high at the G7 meetings this weekend

By OFX

President Trump heads to La Malbaie an isolated town in the province of Quebec Canada today and tomorrow, before leaving for Singapore for his meeting with North Korean Leader Kim Jong Un. Tensions will continue to run high for the G7 leaders as heads of state who thought they had a connection with Trump have realized he is only interested in what he feels is right for US Trade. The best that political analysts are saying that can come out of this G7 meeting is that they agree to continue to talk about trade.

Quiet on the economic calendar for the US today with only medium tier data, at 10 am wholesale inventories will be sighted previous reading was 0%. These inventory numbers are seen as an indication of consumer trends which can influence the GDP forecast.

The US dollar index is up today 0.28% and yet down 0.30% for the week. The US dollar edged lower against both the JPY and Euro on Thursday as Treasury yields plummeted and investors continued to buy back into the Euro ahead of next week’s ECB policy meeting. Ten and two-year Treasury notes plunged throughout London trade losing 0.12% and 0.07% respectively while Fed Funds futures also retreated as markets amended expectations for monetary policy action into the end of the year.

The Canadian dollar has traded at its pivot point of 1.2980 to 1.30 heading into the release of Employment figures and the unemployment rate. May employment decreased to -7.5K well below forecasts of +17.5K, the unemployment rate remains flat at 5.8%.

Overnight the lack of volatility is noted after elections in Ontario saw a 15-year Liberal reign comes to an end as they lose official party status after only winning 7 seats, and a Progressive Conservative majority government is formed lead by Doug Ford. Ford is the brother of the late Rob Ford the Toronto mayor that admitted to smoking crack that gained international attention.

G7 leaders meeting begins today in Quebec and tensions are running high. Comments made be French President Marcon which said. If President Trump wants to isolate the US, he would have no problem signing a G6 joint statement.

The euro has rallied over the past week as a coalition was formed in Italy and comments from European Central Bank policy maker’s added support to the single currency. With markets undecided as to when the ECB would announce the beginning of the end of its Quantitative Easing Program it now seems likely we will get an announcement at Thursday’s interest rate meeting.

The median consensus is that the ECB will confirm an extension to QE at a reduced rate of between €10-20b a month until the end of the year before ending the emergency measures which have done much to shore up the EZ economy over the past few years. The finer details of the decision will be scrutinized, with a euro rally expected should Mario Draghi confirm this will be the end of QE and not leave the door open for further stimulus in 2019. We can expect the euro to bolt should Draghi confirm there will be no taper and QE will finish in September. However, this would likely rattle the markets so we should expect an extension of some sort to be confirmed. EUR/USD trades at 1.1785 with GBP/EUR hovering around 1.14.

Tory infighting re Brexit returned to weigh on the pound yesterday as UK Prime Minister, Theresa May managed to put together a proposal with regards to a UK/EU customs arrangement that was enough to stop Brexit Secretary David Davis from resigning and possibly cause a leadership contest to be launched. With the Irish border/customs situation continuing to be an unsolvable problem the PM held a meeting with Davis and others and finally communicated that the UK Government “expects” the current customs arrangement to last no longer than December 2021, when the transition period comes to an end. The fudged statement was enough to keep the wolf from the PM’s door and appease Brexit hardliners, for now.

GBP/USD had been creeping towards 1.35. However, the political ructions caused the pound to falter dropping back below 1.34 before settling back above the figure, partly aided by some slightly hawkish comments from Bank of England Deputy Governor for Markets David Ramsden in a speech late in the afternoon. Cable is still above 1.34, and it should be a relatively quiet Friday ahead of a packed schedule next week which includes wage growth, inflation, and retail sales numbers from the UK.

The Australian dollar edged lower through trade on Thursday as investors sold into Wednesday’s rally and the currency underperformed, falling against most major counterparts. Having touched intraday and six weeks highs at 0.7675 investors dumped the commodity-driven unit after April’s trade balance report missed the mark and exports fell further than anticipated. While the soft read was softened somewhat by an upward revision to March numbers, the slowdown suggests the export-led growth enjoyed in Q1 may not be carried through Q2 and will be unlikely to drive improvements in wage growth and inflation expectations anytime soon.

Having touched intraday lows at 0.7614, the AUD steadied with supports forming at 0.7605, and we open this morning buying 0.7624 U.S Cents. With little of note on the domestic docket, today attentions turn to Chinese Trade Data. A strong reading could offer renewed upside support, fostering demand for key commodity exports. We expect the AUD to hold through a largely tight trading band into the weekly close with short-term outperformance potentially holding into next week’s FOMC meeting and rate statement.

The New Zealand dollar opened yesterday morning at 0.7023 and remained in a sideways trading pattern like it has done so for the majority of this week since gains were seen on Monday through the 70 US cent handle. The Kiwi briefly tested key resistance levels at 0.7056 during the domestic session before the NZD/USD cross-moved lower seeing overnight lows of 0.7023.

Movements into the weekend will be determined today by the release of Chinese Trade balance figures and the start of G7 meetings being held this year in Quebec. We see current short-term support levels at 0.7020, psychological support levels at the 70 US cent handle as the New Zealand dollar opens this morning at 0.7027.