Boris Johnson
The British pound is trading at its highest level in 18 months against the US dollar. As of this writing, GBPUSD is trading at 1.3474. Meanwhile, EURGBP is trading at its lowest level since August 2016 at 0.8282. This translates to the sterling euro exchange rate being at 1.2061, up almost 2.00% from today’s open price.
The initial rally in the British pound was sparked by optimism from polls that UK Prime Minister Boris Johnson and the Conservatives will win majority seats. According to UK Exit Poll, the party could secure more seats than what was previously expected at 368 seats. Meanwhile, the Labour Party was eyed to get 191 seats. These numbers reflected a striking discrepancy between the two leading parties. They also suggest that Prime Minister Boris Johnson will have an easier time passing his Brexit plan in Parliament.
Early election results show that the polls may be correct. Conservatives-held areas reflect stronger majorities. Meanwhile, Labor-held seats are slowly being lost. The Workington seat which has been with Labour since 1979 has now been won by the Tories. Blyth Valley and Darlington have also been won by the Conservatives. While it is still early on to results, analysts are saying that it’s over: Tories have won, Boris Johnson is still Prime Minister, and a Brexit plan can soon be passed.
There are minor reports due for release from the UK today. However, the British pound will likely take its cue from updates on the election results.
At 9:30 am GMT, the Bank of England (BOE) will release its Consumer Inflation Expectations report. The previous reading for the second quarter of 2019 was at 3.3%. Then at 2:30 pm GMT, The Conference Board Inc. will release its Leading Index report. It is considered as a predictor of economic health. A reading higher than the -0.4% figure we saw for October could mean that economic conditions may soon improve in the UK.
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On the weekly chart, we can see that GBPUSD has broken past resistance at its March 2019 highs around 1.3380. If UK election results continue to show dominance by the Conservatives, we could see the currency pair sustain its rally above the 1.3400 psychological handle. The next near-term resistance is around 1.3650 where GBPUSD hit a high on November 17, 2017. If that does not hold, we could see the currency pair rally to its 2018 highs at 1.4340.
On the other hand, if the pound’s rally runs out of steam, it could pare some of its gains. The area around 1.3080 could provide some support. For one, it is the 23.6% Fib level when you draw the Fibonacci retracement tool from the August 2019 lows to today’s high. Second, it coincides nicely with the 100 SMA and 200 SMA.