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European open – UK election, Fed, BoC, gold, oil

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Can an election break the Brexit impasse?

A mixed start awaits traders at the open on Wednesday, as they prepare for an action-packed day of interest rate decisions, earnings and data.

Source – Thomson Reuters Eikon

As far as the UK is concerned, Brexit is on hold as MPs across the country hit the campaign trail. Boris Johnson finally managed to convince opposition MPs to back an election on Tuesday, which means the public will be heading to the polls in December for the first time in almost a century.

It’s a good thing Brexit is as polarizing as it is or turnout at that time of year would likely be appalling. Between the weather, the dark evenings and, I can imagine, hundreds of Christmas parties happening on that day, it will still be a challenge to get voters to the polls but time is against the UK and few can argue that this isn’t essential.

Who will be more negatively affected by this is anybody’s guess, you could easily make an argument for a variety of groups. And this is at a time when it’s difficult enough to predict who’s Brexit message will most appeal, and the polls haven’t been much help in recent years. Conservatives remain favourite to take a majority which would probably be the most market friendly outcome, even if it does basically kill any hope of a second referendum.

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Fed could bring an end to mid-cycle adjustment

The UK’s obsession with Brexit is not shared by others outside the country, who’s attention today will firmly be on the two big interest rate decisions from the Fed and BoC. The Fed will be more closely monitored given the odds for a cut surpass 90% making it as much of a foregone conclusion as you’ll see.

Any surprise here could really shake things up in the markets and ask serious questions of the central bank’s communication strategy. Having already cut interest rates twice, policy makers will likely once again abide by market demands, at which point they could declare an end to this mid-cycle adjustment, or at least warn of no more in the near-future.

Bullish pressures build ahead of Fed

It’s been a rough start to the week for gold, slipping more than 2% after peaking around $1,520 on Friday. As it stands, this doesn’t look too great a setback and bullish pressures continue to build, with the yellow metal again paring losses above $1,480. Again, the Fed later today will likely play a big role in whether gold is taking another run at $1,520 or breaking back below $1,480 but whichever happens, it could be the catalyst for greater moves in the days ahead.

Gold Daily Chart

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Oil pares gains after cautious rally

Brent crude prices pulled back a little at the start of the week, having rallied gradually for most of the month on optimism around the phase one US-China trade agreement. This has been a very cautious rally to this point and may be built on very wobbly foundations at this point but the news does appear to be improving, which will only create a more solid footing. Brent has run into some resistance around $62 with immediate support below coming around $60.

Brent Daily Chart

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Former Craig

Former Craig

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
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