GBP Tumbles Then Surges On Elections – Now Is Not The Time To Sell
So, the UK general elections are set for June 8th. Immediately after the announcement the GBP fell about a cent. But afterwards the market reversed completely and ended several cents higher, breaking above 1.08 and 1.09.
Now that´s a turnaround you don´t see every day. In fact, it´s the mirror image of what happened about six months ago, when 1.28 gave way. It only took the price a couple of seconds to shoot 100 pips higher to 1.0906, according to my trading platform.
This shows how crowded the short GBP trade is right now, or was, and how many stops got triggered above 1.28. The thing is that there might be as many stops above 1.30 and we know the market likes to scare the weak shorts.
We already broke above 1.29, so 1.30 doesn´t look that far away now. That´s one of the reasons we´re staying out for the moment, which is technical.
The 50 SMA (yellow) is providing resistance but it looks too weak to hold on too long
The other reason is fundamental. Elections are more than a month away and the Liberal Democrats are already campaigning to remain in power despite the fact that Article 50 has already been triggered. The month means there´s plenty of time for many different scenarios to take place. We know that the market loves the “remain” rumours so this could be positive for the Pound.
By the way, UK local elections will be held in May. That'll give us a chance to see how Lib Dems do in order to give us an idea how this reverse Brexit scenario will evolve. In my opinion, there´s no going back, it´s against logic, but since when has the forex market cared about logic?
Even if May wins and consolidates her ranks there´s still a possibility that will leave GBP bears at risk. She potentially could consolidate her position and might go for a soft Brexit. That could also be positive for the Pound.
We don´t know what direction all this will take, but we know that now is not the time to sell GBP/USD. We´ll revaluate if we get to 1.30 and will also keep you up to date with changes in this particular case.
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