When the exit poll was released, it showed the Conservatives had a likely win and the cable broke out of the triangle to spike 190 pips within a minute. When subsequently the results of the marginal seats (key to determine the final outcome of the race) proved to be in favour of the Conservatives, the pair rallied over the course of a few hours and briefly popped above the 1.55 handle, before retracing 50% of the move. The Conservative victory eliminated political uncertainty and is viewed by the market as favourable for the UK economy. Thursday night provided excellent opportunities for scalping the election results, riding rallies and fading spikes.
On Friday the NFP came in without much deviation, which was good, but it failed to provide a clear direction for the Dollar Index as uncertainty over the Fed rate hikes remains (helped by a small miss on average ) and the cable ended the week with a net gain of 300 pips. Fundamentally, the USD remains the strongest currency in the longer term, but the market reacts to any data and US data has not been decisively good lately. The GPB is one of the strongest currencies (especially now that the current government can stay in power) and the BoE is second in line to raise rates behind the FED.
On the technical side, we can see the contour of a potential (a 5-point extension structure) on the 4H chart. The exit poll spike moved the price decisively passed the B point and it found support around the 1.54 handle, where the X point of the pattern lies. The X point of any is always controversial and ideally it would be a major high or low, but it can also be a top or bottom within a larger swing, so this X fits my rules since it’s the of the move down that preceded it.
This support at 1.54 could help the pair move up, towards the D point of the pattern, which has a nice confluence with both the upper channel line and a daily . If this pair follows the script, price will reverse there. Reversals for patterns can be dramatic and extreme price action as it approaches its completion point is not uncommon. There are some news events on Monday, though its very probable there will be no change to the interest rate, neither a rate statement and this could be a non-event but regardless we will have another interesting trading week for the Cable.
SL goes 45 pips behind the daily . TP1 = of AD and TP2 = of AD. In terms of trade management, when TP1 is hit I would take profit on half of my position and roll my stop loss to breakeven, enjoying a risk free trade hunting for TP2.
There are 305 pips to be made (if this pair follows the script) and the trade has an excellent reward – risk ratio of 7.7!
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