• What to watch for
  • Will dovish Draghi  strike again?
  • Dollar firms
  • USD/CAD steadies

Just 24 hours to go. We are expecting a quiet session today in anticipation of tomorrow’s three key events: the European Central Bank meeting, the UK general election, and former FBI Director James Comey’s testimony before Congress. The elections have garnered much attention in recent weeks as Theresa May’s 20-point lead in Parliament has eroded to just a single seat according to recent polls. While the Prime Minister’s Conservative party is still expected to take home a majority, a tight result could end in political deadlock just as Brexit negotiations kick off.

Euro slipped half a cent against the dollar this morning on a report from Bloomberg that the ECB will cut their inflation forecast. If the governing council downgrades the inflation outlook for the next three years, this would reiterate their dovish stance at a time where investors are pushing for the bank to lean on the gas instead of the breaks. What’s pushing their estimates down? Lower outlook for energy prices. Oil has been extremely volatile even as OPEC fights to control global oversupply and maintain price stability. This move would make sense as both ECB President Mario Draghi and the Chief Economist Peter Praet have previously stated concerns that headline energy prices that have driven inflation higher in recent months is not sustainable or an accurate gauge of underlying inflation trends.

The dollar has also stabilized against the Japanese yen after a two-day slide. Safe havens like yen and gold have benefitted from risk-off trades ahead of Thursday. Investors are insulating themselves from the highly anticipated events on Thursday. The biggest risks on a global level sit between the UK elections and the former FBI Director’s testimony. In our mind, the Comey address is the greater unknown of the two events for two reasons. First, the UK elections are a bilateral risk event, either the Prime Minister gains a majority or not. Either way the path forward is somewhat set. Second, Comey’s testimony carries a slew of unknown variables that can lead to a multitude of diverging paths. Consequently, the risks and consequences of his address are all but impossible to measure.

After touching a nearly two-week low, USD/CAD has found some footing in the mid-1.34s as oil prices slipped this morning. We expect this pair to trade on broader US dollar moves tomorrow through the trifecta of global risk events, but Canada’s employment figures on Friday should not be discounted. We’ve seen a substantial divergence from analyst expectations in the employment figures over the last few months, and another significant surprise – upside or downside – could easily take CAD on a roller coaster.

EURUSD: Euro recovered from an early morning dip ahead of the ECB meeting tomorrow.

GBPUSD: Sterling surging ahead of the general elections tomorrow. There are still significant risks for the pound should the Prime Minister lose her majority in Parliament.

AUDUSD: Aussie dollar higher after GDP growth expanded in Q1.  The Australian economy has expanded year-on-year for 25 years now.

USDCAD: Canadian dollar hit two-week highs against the USD but has stabilized somewhat.

USDJPY: The dollar has snapped a two-day slide, trading in the mid-109s against the yen.