UK Elections and its Aftermath Market DirectionAs many investors are preparing for the UK General Election we see very little indication of that in terms of pre-election market price moves.
On April 8th 2017 the UK Prime Minister Theresa May has called for a General Election to be held on June 8th 2017. Since then we have seen the pound rally to new highs in 2017 and surely things seemed to look a bit brighter.
However, recent few weeks have had quite an impact on the pound, as noted in my analysis in march, growing inflation and a lack of growth in wage growth will slowly start showing its signs of concerns in the summer and exactly the reason why the pound had a 100point selloff, which was short lived as bullish sentiment had taken over again.
But not only fundamental uncertainties, the pound faces political instability, Prime Minister May has seen Jeremy Corbyn to be a much greater competition than she and many analysts had expected him to be.
Along with the fundamental and political issues that the UK is facing, the recent terror attacks have also had a fair amount of impact on the upcoming election. May’s opposition Corbyn has called the Prime Minister to resign for cutting down on police forces patrolling the UK streets by 20,000 since 2010.
Theresa May has faced some backlash over the police cuts, however, the swift reaction from armed police forces on Saturdays terror attacks that killed 7 and left about 20 people in critical condition, had softened the tone of the backlash since the perpetrators were shot within 8 minutes of the first call to the emergency services.
The swift and quick reaction from the police forces had shown that despite cutbacks the effectiveness of the British police is still intact however, the argument is that the location of the incident had helped with the armed police force to arrive promptly, had it been in a less popular region of the city we could have seen a much delayed action from the police.
How is the pound affected going into the election?
The market is comfortable with Theresa May’s party winning the election, which would see the pound rallying to possible new highs of this year. There is a significant expectation that there would be a trade agreement that will be suitable for both the UK and the EU or no deal in the case if the agreement does not suit the UK’s demands, May has been known to say “no deal for Britain is better than a bad deal” and that is highly understandable regardless of someone’s political views.
Despite a possible surprise result in the election, the pound has been very resisting and has found some technical support. On the day of the election I expect the price to become very volatile as results slowly start coming through, we would see the price hit price extremes at monthly Pivot Support and Resistance levels.
The support level (circled red) comes in at 1.262 where we have some technical confluence from the Monthly S2, along with Weekly S3 Pivot level and the 23.6% Fibonacci retracement. These 3 technical confluence levels are all within 20pips of each other and I expect the price to react at those levels should it reach the given support and resistance areas.
I am expecting some resistance (circled blue) at the price levels between the 1.34 -1.35 where there is technical price action resistance, 50% Fibonacci retracement level along with the Monthly R4 Pivot.
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