After touching off session highs at 1.3184, the GBPUSD has stalled at that resistance area as today’s YouGov poll shows that the lead of the Conservative Party has narrowed to just 3 points. That’s how close the UK election outcome are expected to be.
As poll results keep filtering in, emphasis for the GBPUSD and other British Pound pairs has shifted totally from the economic indicators to the UK election outcomes as predicted by the polls. The latest batch of UK economic indicators came in the form of the GDP data that showed a reading of 0.0%, which in itself was an improvement from the contractions of the two previous quarters.
Of greater importance to market participants now is the UK election and its effect on Brexit, an event that changes the economic and social fabric of the UK forever. This is the most important election for a generation, according to the head of global macro strategy at TD Securities, James Rossiter. That’s just how important it is.
The UK Election and the GBPUSD
All eyes are on Thursday’s UK election outcome. I do not expect to see much movement on the GBPUSD on Wednesday, as traders hold off on taking major positions on the currency pair ahead of the crucial vote. However, the expectation of most market watchers is for the Conservative Party to sweep into a parliamentary majority that would enable them pass Brexit-based legislations such as the existing Brexit Withdrawal Agreement with ease.
It is not just about the Conservative Party winning. There has to be a reasonable majority of at least 36 seats between it and the Labour Party, which would enable legislation to be passed without undue reliance on other parties whose commitments cannot be guaranteed. It also helps bypass the renegade Conservatives who could scuttle things when feeling begrudged.
This scenario would be GBP-positive. Any other scenario may either not have as much GBP positivity as previously hoped, or could be downright negative for the pair.
The GBPUSD is currently trading at 1.3175. Yesterday’s outlook remains intact. The upside is limited at 1.3180. It now looks like only a UK election victory by the Conservative Party with a majority that exceeds 36 seats would see the continuation of the remarkable recovery of the GBPUSD to the 1.3319 price level in the near term (highs of February 27 and March 15). There is also potential for further upside to 1.3471 (previous highs of June 2018) and 1.3611 (prior highs of January/May 2018).
On the flip side, any other outcome that does not provide a clear Conservative Party majority opens the door for a retest of the downside targets at 1.2993 (previous highs of Oct 18, Nov 1 and 20. Further downside targets lie at 1.2785, which is where previous lows of February 14 and November 8 are located.More content