I’m going to go through the possible options on how the UK election could play out over the next few days. With the election campaign entering its final stages before the vote on June 8th,2017, it’s been a busy week leading up with MP’s shoulder barging and tussling for the headlines.
Here’s what you should be looking out for…
The Conservative lead has recently narrowed according to the polls, and this has seen the pound pull back from recent highs of 1.3. Today (Tues 6th June), the pound has fluctuated at the UK and US open, and has lost ground, currently at the 1.28 marker, but previous bullishness has been indicative of some ok economic data as well as the initial polls showing a conservative majority. Remember it was expected that Brexit was to bring doom and gloom to the UK economy, albeit the effects of the Brexit outcome has not even happened yet. It’s only recently that the economic data has been flat.
As the exit polls are published at 10pm on Thursday evening, investors will have their fingers on the trigger, but it will be important to look at the early outcomes of the marginal constituencies to view the possible voting patterns.
GBP/USD Leading up to Elections (1 Hourly Chart)
Yesterday (Monday 5th June) and today, sterling broke the horizontal trend line (dashed red line) and the minor resistance trend line @1.289 level which was respected today shown by a bounce, and is now challenging the 1.29449 level.
1. Voting Outcome: Conservative Majority
Any outcome other than a conservative majority of over 50 seats, would be needed to push the pound out of it’s current trading range of 1.28-1.3. If the conservatives increase their majority to over 17, there could be an initial rally for the GBP/USD, and then a likely minor sell off. It may be wise to stay out of election trade in this scenario, especially early on, as there are more likely to be whip saws which will stop you out of trades. Anything over a 50 majority, may see a larger push upwards for the pound with a more obvious upward pattern to trade.
Technical Analysis: support levels and resistance.
GBP/USD direction if over 50 seat majority (Weekly Chart)
This chart shows the weekly time frame and the resistance area at 1.33. A support area is at 1.29. In this scenario, the 1.33 level could be breached days and weeks after this outcome.
2. Voting Outcome: Hung Parliament
If labour chips away at the conservative lead and gains the marginal seats on the day, this could result in a good trading opportunity. The pound will decline and as the result is firmed up in the early hours of Friday morning, there will be a risk off sentiment amongst the markets, and you would also see the FTSE descend into a decline and short situation, as banking stocks are sold off due to market uncertainty whilst a credible coalition and parliament is formed over the following days. Sterling could potentially fall and break the 1.28 level.
3. Voting Outcome: A Labour Win
This would be the most surprising result, but the least likely. This would play out similar to above, but would be more severe declines for sterling and the FTSE. (Tip: Short Utilities and Banking stocks or the FTSE100). Sterling could potentially fall back to post Brexit levels and breach the 1.23 levels.