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23.05.2019 01:23 PM
Elections to the European Parliament and the possible resignation of Theresa May

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It seems that there are no more interesting events than the elections to the European Parliament, which will start today. Therefore, traders should closely monitor the dynamics of the euro, from which we can expect increased volatility in the coming days.

Many investors fear that populist parties may take a significant number of seats in the representative body of the EU.

By Sunday, it will be known whether eurosceptics will be able to get enough mandates to block rather than just slow down the legislative process.

The results can also have a significant impact on the upcoming elections in Italy. Rome plans to adopt a budget whose deficit exceeds the threshold value of the eurozone. If the Italian populists enlist sufficient support, then they can feel confident in their abilities and go for a confrontation with Brussels.

Despite the widespread belief that anti-European sentiment is negative for the euro, it should be recognized that populism does not always harm currencies. Take, for example, the United States and Australia. Donald Trump's protectionist policies helped the US dollar, and his Australian namesake strengthened after the unexpected victory of Prime Minister Scott Morrison's center-right Liberal Party over the weekend.

Will the euro be able to grow if the eurosceptic succeed in the elections? It's hard to say for sure now. The election results will be published gradually, so we can not see the breakdown until at least Sunday, and then you can even expect a gap.

Technically, the EUR/USD pair is trading in a downtrend and, apparently, will not unfold until it closes above the mark of 1.1250.

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Meanwhile, the pressure on other currencies remains strong.

The pound sterling fell to 6-month lows against the US dollar after a negative reaction to the proposal of Prime Minister Theresa May on Brexit.

Apparently, T. May's plan was not viable, since Labor and the Conservatives said that they would not support her proposal to first approve the deal on the Customs Union and may consider the option of holding a second referendum on this issue.

In addition, there are many rumors that the Conservatives will try to send T. May to resign in the coming days, not even giving her a chance for the last attempt.

British Prime Minister T. May is preparing to resign, reports The Times, citing her fellow party members, who believe that the head of the Cabinet will announce this tomorrow, May 24, after a meeting with the Chairman of the Parliamentary "Committee of 1922" Graham Brady.

"She hoped that she should take the last step, but if this is not possible, then she gets out of the way," said one of the colleagues of the British Prime Minister.

"It seems that now among the most likely scenarios are the failure of the vote in early June, the resignation of T. May and the announcement of general elections in the country. It is possible that this will lead either to a "hard" Brexit or to the formation of the government of Jeremy Corbyn. Neither looks good for the pound. It is still unknown whether the clouds that are over the Old World and over the euro due to the elections to the European Parliament will be able to keep the EUR/GBP pair below 0.8800, however, the pressure on GBP/USD may well turn into a passage to the support level of 1.2500 and even a little further," – says John Hardy, currency strategist at Saxo Bank.

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After updating the monthly lows, the USD/CAD pair returned to the range in which it has been since the end of April. "Loonie" was under attack due to lower risk appetite and almost 3% drop in oil prices.

Analysts at Danske Bank believe that the chances for a moderate strengthening of the "Canadian" remain.

"Despite the extremely negative signals from the United States and China, the parties are in no hurry with the implementation of the latest threats, and the growth of the global economy in the near future may not be as weak as investors expect, and will contribute to maintaining high oil prices," – said the representatives of the financial institution.

According to the forecast of Danske Bank, within a month, USD/CAD will fall to the level of 1.33, and in the three-month perspective – to the level of 1.31.

The bank also believes that investors are mistaken in their expectations regarding the interest rate cut by the Bank of Canada.

"The probability of this event in the next 12 months is estimated by the market at 50%, but we are confident that the rate will remain unchanged. However, we do not think that the re-evaluation of the prospects will provide "loonie" significant support, as investors look at the rate in Canada through the prism of the Fed's rates, so the adjustment of expectations is unlikely to affect the differential rates," – said the experts.

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Viktor Isakov,
Analytical expert of InstaForex
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