- 63% of all pending orders are to acquirethe Pound
- 57% of all open positions are long
- Strong resistance is around 1.30
- Significant support rests circa 1.26
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Upcoming Events: UK Manufacturing Production, UK Goods Trade Balance, UK Construction Output, UK Industrial Production, UK NIESR GDP Estimate
The preliminary results of the UK General Election held on June 8 showed that the ruling Conservative Party led by the British Prime Minister Theresa May gained 297 seats, whereas its closest rival – the Labour Party led by Jeremy Corbyn – won 252 seats. In the meantime, the Scottish National Party gained 34 seats, the Liberal Democrats – 11 seats, and the Democratic Unionist Party – 10 seats. According to the BBC, the voter turnout rate was at 68.6%. In order to secure a parliamentary majority, it is necessary to gain at least 326 seats. An exit poll release on Thursday showed that the Tories would win the largest number of seats but lose its majority.
According to analysts, the following outcome is set to hurt badly the upcoming Brexit negotiation. The BBS estimated that Theresa May's Conservatives would get 318 seats, whereas the Labour Party – 262. Thus, Britain is on course for a hung parliament, meaning that if no party secures a majority, the Labour and the Conservatives will need to make deals with the smaller parties to form a coalition. The Sterling dropped markedly, briefly hitting its one-month low of $1.72.
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UK fundamental data to focus on
Friday is rich in terms of UK data, such as the Manufacturing and Industrial Productions. The Manufacturing Production measure the manufacturing output and is significant as a short-term indicator of the strength of UK manufacturing activity, which dominates a large part of total GDP. As for the Industrial Production, it measures outputs of the UK factories and mines. Changes in Industrial Production are widely followed as a major indicator of strength in the manufacturing sector. Another important data release will be the Goods Trade Balance. It is a balance between exports and imports of goods. A positive value shows trade surplus, while a negative value shows trade deficit. It is an event that generates some volatility for the GBP. If a steady demand in exchange for UK exports is seen, that would turn into a positive growth in the Trade Balance and should be positive for the GBP. Finally, the NIESR GDP Estimate. It is an estimate of growth over the last 3 months up to the report which comes out a month before the official announcement. The report is highly reliable and would influence the UK monetary policy.
Read More: Fundamental Analysis
GBP/USD plummets after election results
The UK Parliamentary Election results had a devastating effect on the Pound, causing it to trim all previous month's gains against the Buck. Even though the bearish momentum should now persist, the Sterling still has a chance to undergo a corrective recovery. The RSI indicator is near its lower border, which suggests the bullish trend is about to return. However, no solid supports are present to help achieve this goal, the only nearest one being the monthly S1 at 1.2624. On a larger scale the bearish development is not a surprise, as the breach of the wedge's support line was anticipated. In case losses do continue to take place, a solid turnaround points are around 1.26 and 1.2550.
Hourly chart
The daily chart shows the breach from the two wedge patterns, which suggests that more downside momentum could follow. However, with the recent price drop GBP-buying with lower price might be sufficient to help the pair recover and once again stabilise above 1.28.Daily chart
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Traders remain neutral
Market sentiment turned somewhat bullish today, as 57% of all open positions are now long. At the same time, there are now 63% of all pending orders set to acquire the British Pound.
A less optimistic situation is observed elsewhere. The sentiment at OANDA remains bearish, namely 59% of all open positions are short and the remaining 41% are long. Meanwhile, sentiment at Saxo Bank is also bearish, with 53% of traders now being short and the other 47% - long on the Sterling against the US Dollar.
Spreads (avg, pip) / Trading volume / Volatility
Traders see Pound recovering
© Dukascopy Bank SATraders believe the Cable is to rise above the 1.30 major level by the end of the next three months, as 52% of survey participants share this belief. While the current price is around 1.29, the average forecast for September 09 is 1.2905. The 1.34-1.36 range is now the most popular price interval, having 28% of the votes, while on the second place is the 1.20-1.22 interval, with 18% of the voters choosing it.