ECB meeting gets second billing as geopolitics to guide market
The USD is mixed against major pairs but has managed to regain some traction against the EUR, CHF, JPY and CAD as the statement from former FBI director James Comey gave the greenback some room ahead of the testimony before the Senate special committee. Comey’s statement recounts what he recalls was said between him and President Trump in various occasions when the issues of Russia, Mike Flynn and loyalty. The markets await the questions and answers that will come during Comey’s testimony for guidance on the potential impact on major currency pairs.
A conservative majority is the forecasted outcome of Thursday’s elections in the United Kingdom. A large majority would boost the pound and validate the decision by Prime Minister Theresa May to call for the snap elections. A small victory would not be so positive for the pound with a hung parliament and a Labour parliament the scenarios that bring more uncertainty to the Brexit negotiations and have a deeper negative connotation for the GBP in the short term. Opinion polls do not have the greatest track record with UK elections having missed in 2015 with the elections, 2016 with Brexit and now facing another considerable test in 2017. The first exit poll is expected at 5:00 pm EDT.
The European Central Bank (ECB) will release its rate statement on Thursday, June 8 at 7:45 am EDT and a press conference to follow at 8:30 am EDT. There is no change in the benchmark rate or the quantitative easing program, but it is expected the central bank cuts its inflation forecast while delivering a dovish statement. The ECB needs to balance a stronger economy with lower inflation expectations and could launch a taper of stimulus while raising rates at the same time.
The EUR/USD lost 0.173 percent in the last 24 hours. The single pair is trading at 1.1254 after the statement from former FBI director prior to his testimony tomorrow let off some pressure form the USD. Bloomberg also reported on sources within the ECB saying that the central bank would be downgrading its inflation forecast while at the same time praising European growth in the first quarter. The USD appreciated while the euro fell ahead of the ECB rate statement due tomorrow.
European data has been mixed with service PMIs across the region coming close to estimates with France being the lone exception by missing the forecast. Retail sales underwhelmed and German factory orders fell by 2.1 percent as foreign investment demand is slowing down after a strong start to 2017.
Gold lost 0.52 percent on Wednesday. The yellow metal is trading at $1,287.50 ahead of major geopolitical events. Gold has risen after the Trump administration started losing political capital in 2017. The metal was lower in November as the President-elect made huge promises to reform the taxes and spend on modernizing infrastructure around the US. The pro-growth policies have not yet arrived as the administration was embroiled in healthcare reform and immigration policies that have resulted in major backlash and driven the price of safe havens higher.
Gold traders will be following the testimony before the Senate special committee as well as tuning in the UK elections in case of an upset to the polls forecasting a Conservative majority win.
Oil lost 4.799 in the last 24 hours. The West Texas Intermediate is trading at $45.70 after the surprise buildup of US crude inventories this morning. Oil inventories rose 3.3 millions barrels when the forecast called for a drop of 3.5 million barrels. Gasoline inventories also gained as part of a worrisome trend that has seen demand stagnate ahead of the US driving season and putting more pressure on oil prices.
Increasing production from US shale producers has all but offset the best efforts from the Organization of the Petroleum Exporting Countries (OPEC) and other major producers that banded together to extend the production cut agreement until March 2018. The diplomatic situation with Qatar has also raised concerns on how solid is the group as internal rifts are reemerging.
Market events to watch this week:
Thursday, Jun 8
All Day GBP Parliamentary Elections
7:45am EUR Minimum Bid Rate
8:30am EUR ECB Press Conference
8:30am USD Unemployment Claims
Tentative USD Former FBI Director Testimony
Friday, Jun 9
4:30am GBP Manufacturing Production m/m
8:30am CAD Employment Change
8:30am CAD Unemployment Rate