North Korean objections to the persona of Trump’s controversial new National Security Adviser John Bolton seem to be at the root of suddenly crumbling prospects for an historic Trump-Kim summit. Yesterday, Trump blamed Kim for “changing the scope of talks” while apparently South Korea is convinced that Bolton’s recent comments are the source of the blame.
In FX, this seems to have been at the root of a suddenly strengthening Japanese yen overnight and a weakening in the smaller G10 currencies, although some support for the JPY was already on the scene over the last couple of session as long US rates have failed to continue to push higher as we noted yesterday. The 3.00-05% area in the US 10-year benchmark was the key pivot zone on the way up and we are now back inside that zone.
Today, the focus in Italy is on whether the Italian president Mattarella will approve the proposed Five Star Movement’s Conte as candidate for prime minister as the post of Italian president retains considerable power. The announcement may or may not come today and Italian rate spreads have eased about 15 basis points narrower from their widest levels yesterday. The most consistent expression of EU existential fears has been in EURCHF, which has notched new lows below 1.1700 and is within striking distance of its 200-day moving average, a key technical indicator in past chart situations.
Other key event risks on the day are the Eurozone flash PMIs for May to see if there is any relief in the brutally negative data surprises of the last few months. Then we are on to April inflation data from the UK, with GBPUSD surviving a mild assault on key resistance before continuing lower yesterday. We noted yesterday that if the resistance into 1.3500 stays in place, the next focus area may be all the way to 1.3000 and even 1.2900.
Finally, we’ll have a look at the latest batch of Federal Open Market Committee minutes and the state of internal debate among Fed members. This is not a particularly anticipated set of minutes and rate expectations have been sidelined as a factor over the last week – meaning that a bar for surprise on the dovish side may be higher.
The AUDJPY chart shows the degree of whiplash in FX themes, as the formerly hard-driving commodity currencies were suddenly slapped back lower (USDCAD got a strong boost after probing key support as well). The technical situation in AUDJPY is particularly pivotal, with the Ichimoku daily cloud playing such a prominent role in recent weeks/months, and the 84.0+ area as well as the top of the cloud providing the key resistance. No hope for the bulls here unless that resistance is taken out and the next step lower is the bottom of the Ichimoku cloud, which thins out in coming days and provides less support and then the lows for the cycle, although to get there, we might need to see both a failure of the “rising yields” then as well as fresh and broad risk aversion.