Like him or loathe him, Boris Johnson is on track for the biggest election win since Margaret Thatcher, which is some feat given how polarised the Brexit debate has always been.

chart

British Pound traded broadly higher, with six out of the seven GBP pairs rallying over 2% in a matter of minutes.

Volatility was very high. Most notably GBP/JPY, GBP/CHF and GBP/USD saw bullish daily ranges in excess of 300% of their typical daily ranges.

GBP/JPY was the biggest gainer of the session. And this is no major surprise given it was the most volatile cross on the day of the vote for Brexit. But it also has a broadly weaker yen to thank, due to talk of a phase one trade deal between US and China on the horizon.

FTSE futures opened -0.3% lower: In the grand scheme of things, this is a tiny drop given the strength of the British pound. But then again, risk appetite is higher due to trade progress. And with Brexit now making progress, with it comes a relative amount of certainty which has been sorely lacking. Dare we say, we may even see a higher FTSE today despite Sterling strength.

chart

Having pencilled in 368 seats for a majority Conservative Government (compared with 191 for Labour) it was the most bullish scenario out of the four outlined by Ken Odeluga. At the time of writing, the Conservative Party has gained 25 seats, the DUP has gained 11 whilst Labour lost 62 seats in what was dubbed a bloodshed and massacre for Labour by some pundits. 

 

Corbyn to resign:

He’s effectively resigned by promising not to lead the party in any future election campaign. Speaking of time for reflection he’s clearly opened the door to resign, although he could decide to stay with the Labour party if the party lets him. Still, there were calls for his resignation from fellow constituency leaders on live TV, before final result were in. So, we’ll just wait to see how see how ‘reflection time’ goes with his party. (Spoiler – his future is not looking too bright…)

 

Moving Forward: 

Ultimately a cloud has been lifted and the government can now focus on getting their Brexit deal through. Just after the exit polls were announced, reports surfaced that we can expect a mini cabinet reshuffle tomorrow. More importantly, Johnson plans to push his Brexit deal through parliament next Friday which means the transitional phase for Brexit is likely to happen by 31st January. If for some bizarre reason they don’t, Nigel Farage has threatened to “throw his hat back into the ring” if the UK is still “in crisis” in six months.

Whilst today is a huge victory for the Conservative Party and of course Brexiteers, there’s still no guarantee a deal will be reached with the EU by the end of 2020. This means next year could be just as volatile for the pound, and we could see a reversal of GBP fortunes if it looks like a deal will not materialise.

 

Scottish Referendum 2.0?

Upon seeing the exit polls, the former SNP Westminster Leader called it as ‘inevitable’ that a second referendum will take place. Scotland’s First Minister Nicola Sturgeon says that, whilst she respects Boris Johnson has a mandate to take England our of the EU, he doesn’t have one to remove Scotland from it. Yet a second referendum for Scottish independence is a thorny issue to say the least, and one which Johnson is not likely to be on board with. Whilst it appears unlikely at this stage, we doubt this topic will simply disappear. Especially when / if UK leaves the EU.

chart

 

Sterling Bears scorched:

As of last week, traders were net-short GBP by -30.1k contracts. We won’t get to see how many of these shorts were burned until next Friday’s COT report, but we’d say it was a fair few (if not all of them) judging from the widespread GBP strength. So, we could well see GBP traders net-long for the first time since April in due course, particularly if a swift and amicable Brexit appears to be on the cards. Ultimately short covering adds fuel to the fire, as will fresh longs being initiated.

chart

EUR/GBP Pauses at 0.8300: Finding support around the December 2016 lows, it’s a clear line in the sand over the near-term. Given the extended nature of today’s bearish bar we could expect a technical bounce., although we doubt it will come close to the 0.8500 swing high. Besides, timing wise it appears a significant high has occurred around 0.8500, so we envisage fresh lows in due course.

chart

GBP/USD broken through the 2019 high like butter, and there are no obvious signs if a top just yet. Clearly not a force to be reckoned with, momentum points higher although bulls would be prudent to seek a lower volatility entrance. A pullback to the 1.3380 high and / or the bullish trendline may provide such an opportunity, and bulls could seek targets around 1.3675 and 1.4000.

CFD and forex trading are leveraged products and can result in losses that exceed your deposits. They may not be suitable for everyone. Ensure you fully understand the risks. From time to time, City Index Limited’s (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material. As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed

Analysis feed

Latest Forex Analysis

Editors’ Picks

EUR/USD depressed ahead of ECB’s decision

Despite the broad dollar’s weakness, the EUR/USD pair remained subdued, amid a cautious stance ahead of the ECB’s announcement. Trump threat to impose tariffs on EU cars also weighed.

EUR/USD News

AUD/USD keeps falling ahead of critical data

Australia will release Consumer Inflation Expectations and monthly employment data, both relevant for the RBA. Numbers could be a game-changer for the central bank.

AUD/USD News

Australian employment Preview: Upbeat numbers could temper rate cut expectations

Australia will release this Thursday its  December employment data. The economy is expected to have added 15.0K new jobs in the month, following a 39.9K increase in November. 

Read more

Gold Price Analysis: Intraday uptick falters near 50-hour SMA, remains vulnerable

Gold lacked any firm directional bias and seesawed between tepid gains/minor losses through the mid-European session on Wednesday.

Gold News

USD/JPY rises above 110.00, potential head-and-shoulders on 1H

Risk reset in stocks is boding well for USD/JPY.  The pair may be forming a head-and-shoulders pattern on the hourly chart. The bulls are not out of the woods yet and a break above 110.12 is needed to invalidate lower highs setup on the hourly chart.

USD/JPY News

Forex Majors

Cryptocurrencies

Signatures