GBP/USD Forecast: Too soon to party? The election devil may be in the detail

• GBP/USD is on the back foot amid growing political uncertainty.
• PM Johnson will make another attempt at approving a winter election.
• Tuesday's four-hour chart is pointing to further falls.

Third time a charm? No, in Prime Minister Boris Johnson's case of trying to dissolve parliament and opt for elections. However, a fourth attempt due later today may move forward. 

The opposition Labour party has decided it cannot hold back any longer and said that it supports elections. The party led by Jeremy Corbyn has said that the conditions to prevent a hard Brexit have been met and that it now supports have a pre-Christmas vote. However, it is more likely that central-left politicians have realized they that are "snookered" – the elections are going to happen anyway after receiving support from other opposition parties. Some fear that the poor showing for Labour in opinion polls may turn into grim reality. 

GBP/USD has jumped in response as having a clear plan for the next few months provides certainty. However, the pound's party may have come too early – as the date and other details are still discussed. 

Election devil in the details

Earlier, the government presented a one-page bill that will fix the election date to December 12. The Liberal Democrats and the Scottish National Party (SNP) that for elections on December 9. Conservatives want the later period to pass legislation related to Northern Ireland. Still, the opposition fears that Johnson may use it to re-introduce his Brexit deal after pulling it last week.

The Lib Dems also prefer the earlier date as students will still be in session, thus having easier access to polling booths. Support for Liberal Democrats – and for remaining in the EU – is widespread among younger voters. These parties may compromise on December 10 or 11. 

Another potential hurdle is about who gets to participate. The opposition may open the door to 16 and 17-year-olds to cast their votes – increasing their chances given the age-related voting tendencies mentioned earlier. Lib-Dems may also want permanent EU residents – who are not UK citizens – to have their say. 

Parliament is set to debate the election today, and high volatility could continue. The level of trust between all parties is low, and perhaps the decision may be dragged to Wednesday. 

EU extension and beyond

The focus on the pre-Christmas election – which may depress turnout due to darkness and bad weather – comes after the EU approved a three-month extension to Brexit. France – the sole holdout that preferred an earlier exit date – relented amid pressure for new elections. The bloc pledged not to allow further delays and to refrain from renegotiating the accord. However, experience has shown that everything is possible. 

Beyond Brexit, markets are content with US President Donald Trump's optimism about trade talks. He said that negotiations are "ahead of schedule" and lifted markets.

Later today, the Conference Board's Consumer Confidence gauge (see preview) is set to move markets that are also thinking of Wednesday's big day. 

Overall, it is a hectic week on the US calendar. See the Halloween week guide to five critical US events that may spook markets about a recession

GBP/USD Technical Analysis

GBP/USD has bounced from the lows, but momentum on the four-hour chart remains to the downside. Moreover, the currency pair remains capped below the 50 Simple Moving Average. On the other hand, it trades above 100 and 200 SMAs. 

Resistance awaits at 1.2875, which held GBP/USD down earlier this week and nearly converges with the 50 SMA. Next, we find 1.2950, which was a swing high last week. The October 17 swing high of 1.2989, and the five-month high of 1.3013 are next.

Support awaits at 1.2800, which is a round number and also worked recently as support. The moderate uptrend support line also defends this area. Lower, we find 1.2750, which was a support line two weeks ago, and 1.2706, which was a swing high earlier in October.