Historic Victory In The UK
Boris Johnson and the Conservative Party scored an historic victory in Thursday’s snap-election. The Conservatives won an overwhelming number of seats, secured a clear majority in Parliament, and their most commanding lead in over thirty years. The news is a win for the pro-Brexit movement and virtually assures a smooth, clean break will happen early in 2020.
The win is also a clear victory for the UK economy because it alleviates virtually all uncertainties that have been plaguing this market. Businesses have been loath to make plans without knowing the outcome of Brexit. The U.S. President Donald Trump congratulated Johnson on the victory in a Tweet saying the two nations could begin working on a comprehensive trade deal as soon as Brexit was completed.
In terms of the markets and the impact on prices, UK stocks led the rebound in European equities with a gain of 1.90% at midday. The pound also got a boost from the news, surging more than 2.0% in early Friday trading. The move confirms bullish signals seen in the GBP/USD and EUR/GBP over the past two months. The question now is, is this the time to buy? Based on the charts I don’t think it is.
The GBP/USD did indeed surge by more than 2.0%. The pair moved up and through the 1.3370 level in what could have been (and might still be) a very bullish move. The problem for the bulls is that sellers were ready for the move and overwhelmed the rally. Whether it be profit-takers, short-sellers, or loss-cutters the signal is clear; there is strong resistance to price movement above the 1.3370 level. This is important because 1.3370 is a two-year high-water mark and the indicators confirm the presence of heavy resistance. Both stochastic and MACD show some divergence from the new high.
The weekly charts are a little more bullish but still suggest the possibility of consolidation if not correction. The 1.3370 level is still an obvious point of strong resistance, the difference is in the indicators. The MACD shows convergence with the new highs that shows a high-level of market commitment and the possibility of new highs to come. If so, there will be a better time to buy. I would wait for a clear break above the resistance target to avoid risk of reversal.
The EUR/GBP is equally bullish in respect to the pound (bearish for the pair). The pair is moving lower but likewise finding resistance to lower prices. Support is present at the two-year low and it may keep prices from moving lower in the near and long-term. Traders are advised to avoid overly bearish positions without a clear break of support. The 0.8230 area should be watched closely when approached for indications of buying and potential for bullish reversal.