UK Election Strategy For those tracking UK elections we have important updates on the opinion poll front, despite manufacturing declining further Pound will only move on election polls for the coming weeks.
Here is a snapshot from the latest Westminster voting intention polls were released over the weekend:
- CON = Conservatives, LAB = Labour, LDEM = Liberal Democrats, BREX = Brexit Party
- Change from previous poll by the provider shown in () & provided by Britain Elects.
- Furthermore, there were two model estimates of seat outcomes released over the weekend, with Datapraxis pointing to a 48 seat majority for the Conservative Party, while Electoral Calculus pointed to a 64 seat majority for the Conservatives.
- Polling in the next few days/coming week will be key, and will reflect digestion of two major parties’ manifestos
For strategy on the FX board we are going to dissect GBPAUD; a Johnson majority will present a knee-jerk positive reaction for GBP; which can carry cable towards 1.35 and GBPAUD towards 1.94xx. Although this option will guarantee severe damage to the UK economy via Brexit the initial perception knee-jerk reaction will be seen as positive GBP as it will pave a path for clearer pain. This will trigger the outlook switch from neutral in Sterling to sell, eventually cable will slip towards 1.15xx once we trigger the 'buy rumour sell fact' leg in Brexit.
To the other side, a Labour majority or rainbow led coalition contains a knee-jerk downside repricing in GBP via Corbyn's unfriendly corporate policy. Capital inflows will dry faster than even the biggest bears on the street expected from Brexit. This will push GBPAUD to test the lows in the range 1.85xx.
The last leg to the stool is a Hung Parliament , this will keep the country in limbo and immediately trigger Cable to test the 1.22-1.24 lows. A reset back to the chaos we were trading all year long, a country spending years in debate with no progress is very bearish for the currency.
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Ukelections
The UK General Election Put the GBP in FocusIt’s finally election day in the UK. Can Johnson win a majority and deliver on Brexit or is there more pain to come? The UK may finally would be able to put the epic Brexit saga behind it. GBP/USD is sitting now on 9-month high and H4 RSI is in overbought zone.
Boris Johnson is ready to take Britain out of the EU with the deal negotiated just weeks ago. Whether there are any jitters ahead of the first set of results remains to be seen, but some caution is likely to set in.
On a Tory victory market euphoria could see GBP push higher across the board. For the GBP/USD, beyond the March 2019 highs of 1.3380, it’s likely to see a rally towards $1.35 levels and possibly more before we start to see any retreat. Because such outcome was already priced in, later the pound could see a "sell the fact" pullback.
Of course, a hung parliament scenario is not excluded. The prospect of Brexit being done early next year will evaporate and the pound would price in further Brexit uncertainty taking it back to 1.2820 before further potential rebound from this support.
Labour Small Majority is the least market friendly outcome given market concerns over Labour’s nationalization and fiscal policies, in addition to further Brexit uncertainty. The market is not pricing in a Labour win. But if Corbin enter on Downing Street, the GBP/USD could drop significantly towards 1.26.
What is your projections and bets?
UK100: Could the slide bellow 7,190 extend?FTSE100 (UK100) index is also an interesting one to watch this week. The index was bounded in a range above 7,000 handle since August. Note that FTSE has been in a loose inverse relation with the pound since the Brexit referendum.
So, in case of a clear Conservative win this Thursday, a strong rally in both the pound and FTSE would be a strong sign of return in investor confidence. Take in mind that the UK elections are held when markets are open, and a new government may be formed on Friday, so volatility could be significant throughout the night and also during all day at Friday.
UK100 index were steady on Monday after posting the biggest weekly loss in 9 weeks last week. A firmer pound prevented more extreme gains as the latest poll showed the Conservatives increasing its lead over Labour by two-digits percentage points.
The UK100 index is trading below the 50-day and 200-day SMAs on 4-hour chart. The RSI indicator is sloping down on both H4 and D time frames. This morning FTSE broke the first support at 7,200. We opened Short position at 7,190 with Stop Loss above 7,250 and Take Profit around 7,130. There is located the lower line of Bollinger Bands on 4-hour chart and since October this level is acting as key support.
On opposite side, the first resistance is the top in the last 3 days at 7,256, followed by H4 50 SMA, middle line of BBs and 200 SMA (on both H4 and daily charts is around 7,320).
Do you trade this index and how?