Traders have just experienced the most exciting day of the week, with the ECB meeting, ex-FBI director James Comey’s testimony and the UK snap general election kicking in almost simultaneously.

The former two didn’t trigger much volatility overnight, but the UK election result remains a source of great uncertainty at the time of writing. 

A BBC exit poll released earlier this morning suggested the Tories were expected to be the biggest party, but would fall 12 short of an overall majority. This outcome could lead to a minority government or a hung parliament. This goes against Theresa May’s objective in calling for a snap election two months back, when she aimed to strengthen the government in order to have better bargaining power in the upcoming Brexit negotiations. 

GBP/USD tumbled over 240 pips or 1.9% in early Asian trading hours. More volatility is expected throughout this morning, with most counts releasing at around 10-11am (Singapore time).  Technically, GBP/USD broke down the key support level of 1.280, with its next support level found around the 1.260 area.

The US dollar rebounded for a third day, partially due to political uncertainty surrounding Europe. Traders are also positioning themselves for the second Fed rate hike of this year, which will be decided in the FOMC meeting next week.

China trade balance shows revitalised global trade

Better-than-expected Chinese trade balance figures in May painted a brighter picture of the global trade outlook, and signalled a recovery in international demand. China’s exports and imports expanded 8.7% and 14.8% year-on-year respectively, beating economists’ forecasts of 7% and 8.5% respectively. 

Strong growth in exports was attributed to solid demand from major export destinations including the US and Europe. Imports from the US jumped 27%, a surge that reflected resilience in domestic consumption. The trade surplus widened for a fourth consecutive month to US$40.81bn, but came in below forecasts of US$46.32bn, as growth in imports outweighed exports. 

Favourable trade data boosted investor confidence. The Shanghai Composite and Hang Seng indices climbed 0.32% and 0.33% respectively. 

GBP/USD chart

 

Heightened market volatility is likely over the election period, which could result in widened spreads. We recommend that you monitor positions carefully, consider the use of appropriate risk management tools and maintain a sufficient account surplus throughout this period.

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