GBP/USD bulls cautiously stacking up their chips for a Tory victory before the shake-out

  • GBP/USD is elevated on the premise of a Tory UK election victory.
  • Less committed bulls may sell-out ahead of the result. 
  • Bulls cautioned over a 'buy the rumour sell the fact' risk.
  • BoE and Fed are also in focus, US dollar strength to cap cable rallies. 

GBP/USD is trading with a bullish bias as we head towards the UK elections on Thursday and results that will be released early-doors Friday morning. GBP/USD is currently trading bid, +0.36%, having travelled from a low of 1.3132 to a high of 1.3189. 

Indeed, the Tories are set to win the UK election which will likely put the Brexit deal to bed, thus encouraging markets to begin to focus once again on the UK economy. Today's UK data events took a backseat to the election hype despite a flat reading for Gross Domestic Produce for the month of October. The GDP reading has followed two consecutive monthly contractions –  which means we have now seen three straight months of negative/zero m/m growth for the first time since 2009.

In the same vein, after this week's general election, the next hurdle for UK markets is next week's Bank of England decision. However, with UK data continuing to surprise to the downside consistently since the last BoE meeting, we might still need to wait for further post-Brexit evidence before the Monetary Policy Committee will show their hand.

Meanwhile, staying with UK elections, for now, pent-up demand could see the pound rally towards 1.34 handle, (breaking 1.3380 resistance on the way there), in line with the late October daily ATR of around 150 pips. However, bulls may hesitate to get too long of the pound considering there is still a long way to go in European politics before we will have some meaningful traction. For instance, despite a Tory victory, there is going to be a long road of negotiations ahead during the transition period.

Moreover, no matter if the Tories do win convincingly, we have a 'sell-the-fact' profit-taking risk to consider – speculative long positions have accumulated into the build-up to the event. Committed bulls will likely want to see cable pop higher once the result is known before the shakeout of stale longs, although, leading into the event, the less committed bulls will likely start to cash in. 

FOMC now in focus

In the immediate future, we have the Federal Open Market Committee and the Federal Reserve's subsequent interest rate decision. Rates are expected to remain steady at 1.50-1.75% while a 'patience' rhetoric will emulate prior Fed speeches and statements filled with preconditions before easing again in the future. Therefore, the US dollar can likely continue to perform and be an additional roadblock for eager cable bulls. "We don't anticipate any dissents next week for the first time since May. Statement and dot-plot shifts are well anticipated," analysts at TD Securities argued, adding:

"A propensity to compel major FX shift is low at this time of year. Powell's tone in the press conference should diverge from a cautious ECB (the next day), and should modestly support the USD."

GBP/USD levels

  • Bullish targets: 1.3160/87 being tested, 1.3380 comes next ahead of 1.3850.
  • Bearish targets: 1.3013, 1.2930, 1.2768.

Depending on what goes down in UK politics for the week ahead, the technical areas are well mapped, with bullish targets set on a firm break above the 50% mean reversion of the mid April-3rd September range in the 1.3160s and a five-year downtrend with a confluence of the 200-week moving average. 1.3187 May high reinforces the said resistance

– Chart of the week: GBP/USD bulls target closes above critical 1.3160/90 on UK election week

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.

Feed news

Latest Forex News

Latest Forex News

Editors’ Picks

AUD/USD keeps gains above 0.7300 on PBOC's status-quo

AUD/USD picks up fresh bids and regains 0.7300 amid fresh US dollar selling across the board, as the market sentiment remains mixed starting out a fresh week.  Upbeat comments from Aussie PM Morrison and Chinese President Xi Jinping favor the bulls despite PBOC's status-quo. 


USD/JPY: Bears keep the reins for sixth day near 104.50 amid mixed clues

USD/JPY recovers early Asian losses while bouncing off 104.43. Risk dwindles as virus woes combat hopes of further stimulus and geopolitical headlines. Markets in Tokyo are off for Respect-for-the-Aged Day, Chicago Fed National Activity Index, Fed Chair’s speech will be the key.


Gold due for a breakout, according to key indicator

Gold's multi-week consolidation in a narrowing price range could end with a bullish breakout, as a widely-tracked daily chart indicator is about to turn bullish. The yellow metal has carved out a descending triangle pattern over the past four weeks.

Gold News

WTI buyers attack $41.00 amid US-Iran tension, escalating virus woes

WTI remains heavy below 50-day SMA, drops from $41.18 to begin the week. The energy benchmark keeps trailing 50-day SMA for over two weeks while taking clues from the US-Iran tussle and the coronavirus (COVID-19) headlines. Hopes of further stimulus, China’s optimism favor energy bulls.

Oil News

It was the best of times, It was the worst of times

Economic reports from most of the major economies show the pace of the recovery has slowed.  In the same way, the recovery began before the end of the  Q2, the loss of economic momentum was seen as early as July in some series and August in others.

Read more