GBP/USD Forecast: Boris boost may backfire amid an overbought outlook

GBP/USD has been rising after weekend polls showed gains for the Conservatives.
Further developments related to British politics and trade talks are eyed.
Monday's four-hour chart is pointing to overbought conditions

Yohay Elam FXStreet

Boris is back to a double-digit lead in polls – and the pound likes it. The most recent batch of election surveys has shown a substantial increase in the ruling Conservative Party's lead over opposition Labour. According to Britain Elects' poll tracker, the Tories are set to be backed by 39.7% of voters, up 2.6 points. Labour is also up, but only by a meager 0.4 to 28.8. A 10-point should be sufficient for winning a majority in parliament.

Prime Minister Boris Johnson's additional backing comes from former supporters of Nigel Farage's Brexit Party. The candidates' lists have revealed that 43 members of Farage's right-wing outfit have opted out of running – joining 317 that the party had already withdrawn. Apart from helping the Conservatives win in these constituencies, the party's climbdown also deters other voters from backing it.

Investors prefer an outright majority for the PM that would allow him to ratify the Brexit accord and also enact market-friendly policies. GBP/USD has kicked off the week with a Sunday gap and is gradually moving higher.

Johnson is addressing the Confederation of British Industry (CBI) and will try to woo businesses to rally behind him – offering tax cuts. Jeremy Corbyn and Jo Swinson, leaders of Labour the Liberal Democrats respectively, will also deliver speeches at the event. Markets are worried about Corbyn's plans to nationalize several industries, including broadband.

Boris' other affairs

With 24 days to go and a 24/7 news cycle, any new opinion poll or scandal may impact markets. While Johnson will likely be cheered by at the CBI event at the InterContinental London, he is under investigation in another part of town.

The London Assembly will dive deeper into his relationship with American businesswoman Jennifer Arcuri – whom he might have helped without as Mayor of London. He has reportedly failed to disclose the nature of their ties after he promised to do so after an affair with Helen Macintyre, who also bore his child.

Johnson has been avoiding questions about his colorful private life – including those about the number of children he has. So far, his ratings have been unhurt as voters focus on policies, but suspicions of wrongdoing

Across the Atlantic, high-level US-Sino talks have been labeled as "constructive," keeping stock markets bid. However, it remains unclear if President Donald Trump is willing to remove the new tariffs the US intends to impose in December, or undo previous rounds. Investors await Trump's tweets and commentary from Beijing.

A quiet calendar enables UK election news and trade developments the full stage to move pound/dollar.

GBP/USD Technical Analysis

The Relative Strength Index on the four-hour chart is well above 70 – indicating overbought conditions. Will GBP/USD fall? Other indicators are positive – momentum is to the upside and sterling trades above the 50, 100, 200 Simple Moving Averages.

Overall, a downside correction may be expected, but GBP/USD still has room to extend its gains afterward.

Resistance awaits at 1.2980, which was the high point at the end of October. It is followed by 1.3013, the peak of October and the highest in six months. Further above, 1.3045, 1.3080, and 1.3175 – all dating back to the spring – are eyed.

Some support awaits at 1.2950, which capped the pound in early November. It is followed by 1.2900, a swing high from last week, and then by 1.2820 and 1.2760.

More GBP/USD Forecast: All aboard the Boris bus? Downside momentum dims outlook

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

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