UK Election, ECB Rate Decision Set to Drive Financial Markets
Several events are scheduled to take place on “Super Thursday,” setting the stage for a potentially volatile day in the financial markets.
The United Kingdom’s parliamentary election will be decided on Thursday, with final polls showing a tight race between the ruling Conservative party and the main Labour opposition. Final YouGov polls show a seven-point lead for the Conservatives. This would likely lead to a bigger Tory majority in the House of Commons.
However, just a few days earlier YouGov said the government of Prime Minister Theresa May could fall well short of a majority. Mrs. May called the snap election back in April to unite parliament in its forthcoming Brexit negotiations. Anything less than a Tory majority would wreak havoc on the British pound, which has enjoyed steady gains in recent months.
The European Central Bank (ECB) will also deliver a rate verdict at 12:30 GMT. While no change in monetary policy is expected, the central bank may adopt a more upbeat view of the economy. Such a move would likely support the euro, which has struggled to gain the psychological 1.13 US level.
The ECB’s statement will be accompanied by a press conference featuring central bank President Mario Draghi.
In North America, former FBI Director James Comey will testify before the Senate in his first public engagement since being fired by President Donald Trump.
The US dollar held steady against a basket of world currencies Thursday. Precious metals paused as a result, with investors looking ahead to the day’s fundamental news events.
The British pound broke to the upside Wednesday on route to fresh one-week highs. The GBP/USD continues to hold on to weekly highs above 1.2950, which could lead to a possible re-test of 1.30. On the downside, immediate support is clustered around the 1.2900 level. The short-term outlook will depend largely on the outcome of the election on Thursday.
Volatility weighed on the euro in mid-week trading, as investors braced for ECB headlines. After hitting daily lows near 1.1210, the EUR/USD rebounded back toward 1.1260, where it now sits. A re-test of 1.13 is in play, with further gains to the upside likely to test the high from last August near 1.1370. Immediate support is located at the 1 June low of 1.1202.
Gold has run into resistance over the past two sessions, but nevertheless maintains its bullish outlook as it resumes upside momentum. The key target continues to be $1,300, which is both a psychological milestone and a major technical breakthrough. In order to get there, prices must cross the 17 April high of $1,295.38. A failure to do so in the coming sessions where volatility is high could sent prices back toward the $1,214 support level, which represents the low from 9 May.