It’s finally election week in the UK, and unlike many elections, the winning party is far from a foregone conclusion. The latest polls show a tight race between the Conservative Party led by incumbent Prime Minister David Cameron, and the Labour Party, led by Ed Miliband, with neither party likely to secure an outright majority. As of writing, most forecasters are predicting a Conservative win by the smallest of margins, though this is far from unanimous, suggesting that election night itself will be a rollercoaster for political junkies and traders alike (for more on the UK election and market expectations, see our full special report here). Regardless of which party wins the election, a messy, drawn-out negotiation to form a ruling coalition is probable.
Traders are notorious for being a forward-looking and fickle bunch, perhaps explaining some of GBPUSD’s big selloff in the last 48 hours of last week trade. Cable fell a staggering 380 pips from Wednesday’s high to Friday’s low and actually managed to close lower on the week despite the big early-week rally. This price action created an ugly Bearish Pin Candle*, or inverted hammer, on the weekly chart. For the uninitiated, this candlestick pattern shows a big shift from buying to selling pressure and is often seen at near-term tops in the market. Last week’s reversal, combined with the previous high and medium-term Fibonacci resistance level around 1.5500, suggests that the pair may not revisit the recent highs any time soon, especially with the election uncertainty likely to stretch past the official election date.
As of writing, GBPUSD is peaking below its 38.2% Fibonacci retracement at 1.5140, potentially opening the door for more weakness toward psychological support at 1.50 or the 61.8% Fibonacci retracement at 1.4920 next. As always, traders should keep an eye on the upcoming PMI reports out of the UK and US, as well as Friday’s US Non-Farm Payroll report, to drive intraday swings in GBPUSD, but the driving story for the pair this week will be political, not economic.
*A Bearish Pin (Pinnochio) candle, or inverted hammer, is formed when prices rally within the candle before sellers step in and push prices back down to close near the open. It suggests the potential for a bearish continuation if the low of the candle is broken.
Source: FOREX.com
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
AUD/USD post moderate gains on solid US data, weak Aussie PMI
The Australian Dollar registered solid gains of 0.65% against the US Dollar on Thursday, courtesy of an upbeat market mood amid solid economic data from the United States. However, the Federal Reserve’s latest monetary policy decision is still weighing on the Greenback. The AUD/USD trades at 0.6567.
USD/JPY: Japanese Yen advances to nearly three-week high against USD ahead of US NFP
The Japanese Yen continues to draw support from speculated government intervention. The post-FOMC USD selling turns out to be another factor weighing on the USD/JPY pair. Investors now look forward to the crucial US NFP report for a fresh directional impetus.
Gold recoils on hawkish Fed moves, unfazed by dropping yields and softer US Dollar
Gold price clings to the $2,300 figure in the mid-North American session on Thursday amid an upbeat market sentiment, falling US Treasury yields, and a softer US Dollar. Traders are still digesting Wednesday’s Federal Reserve decision to hold rates unchanged.
High hopes rouse for TON coin with Pantera as its latest investor
Ton blockchain could see more growth in the coming months after investment firm Pantera Capital announced a recent investment in the Layer-one blockchain, as disclosed in a blog post on Thursday.
NFP: The ultimate litmus test for doves vs. hawks
US Nonfarm Payrolls will undoubtedly be the focal point of upcoming data releases. The estimated figure stands at 241k, notably lower than the robust 303k reported in the previous release and below all other readings recorded this year.