GBP/USD Forecast: Will Boris cling to power? Hundreds of pips at stake

"A choice between an unreliable leader and intolerable one" – is how many voters describe the battle between Prime Minister Boris Johnson and Labour leader Jeremy Corbyn. The results of Thursday's elections are consequential for the pound and for broader markets, whether Brits like their leaders or not. 

Investors would prefer Johnson's Conservatives to cling onto power as they would move to ratify the PM's Brexit accord and enact business-friendly policies. Markets fear Corbyn's plans to nationalize infrastructure and vast spending plans. 

According to recent polls, the Tories are on course to an absolute majority in the House of Commons. However, their lead has somewhat narrowed and now stands at nine points. Moreover, tight races are likely in many constituencies. YouGov's highly regarded MRP poll showed Johnson's party ahead with a majority of 28, but also a possibility of a hung parliament. 

What are markets pricing? Sterling's surge in the past fortnight reflects expectations for a small win for the ruling party. If this scenario turns into reality, the pound may marginally extend its gains but also fall on a "buy the rumor, sell the fact" scenario. A landslide victory is needed to extend GBP/USD's advance. 

On the other hand, a hung parliament that leads to prolonged political uncertainty or Corbyn marching into Downing Street may send the pound plunging. 

For everything you need to know, see:

UK Elections Preview: Five scenarios for the vote and potentially wild GBP/USD reactions

Outside the UK election bubble

Cable's rise has also been fueled by the dollar's weakness. Jerome Powell, Chairman of the Federal Reserve, has confirmed that the bar for raising rates is higher than the one for cutting them. He would first want to see that inflation has risen before hiking, while he is ready to reduce rates in response to future prospects of lower prices. 

The Fed left rates unchanged and signaled no changes in 2020, but markets foresee one reduction next year.

President Donald Trump will meet his top advisers to decide if to move forward with slapping new tariffs on China on December 15. Beijing has vowed to retaliate in what seems like a new deterioration. The world's largest economies had previously reported progress in talks. 

Overall, it is hard to exaggerate the importance of the UK elections, which may send trigger hundreds of pips of volatility in GBP/USD. Other events will likely have a minor impact.

GBP/USD Technical Analysis

Pound bulls are in full control as the currency pair has set higher highs and higher lows – as shown by the asymmetrical uptrend lines. Momentum on the four-hour chart remains positive and the Relative Strength Index is below 70 – outside overbought conditions. Also, GBP/USD trades above the 50, 100, and 200 Simple Moving Averages. 

Resistance is at the fresh nine-month high of 1.3228. It is then followed by the March high of 1.3275. Next, we find the 2019 peak of 1.3380. The next big target is 1.35, which dates back to 2018.

Support awaits at 1.3180, which was a stepping stone on the way up. It is followed by 1.3165, and then by 1.3130, all temporary range limits in recent days. The round level of 1.31 is of higher significance. Next, we find 1.3050, 1.3013, and 1.2985, which all played roles in recent months.