Brexit Certainty Grows
The British Pound is on the move. The pound has broken out versus the U.S. dollar and setting new highs versus the Eurodollar. While economic uncertainty persists, the move is driven by the growing certainty of a smooth Brexit early next year. After three years of political wrangling, what has changed to cause such a shift in sentiment? The snap-elections planned for next week.
When Boris Johnson was confirmed as Prime Minister earlier this year it seems as if the Brexit was a certainty but no. Divisions within his own Conservative Party compounded opposition from Labour and blocked his efforts. The snap election is intended to cement the Conservative hold on Parliament and alleviate any chance of a deadlock. The news now is that the Conservatives have a healthy lead over their opposition and stand to take full control of Parliament. When that happens Johnson’s Brexit Deal is sure to pass.
What tipped the scales? Although most of Parliament is in favor of the Brexit, pro-Brexit efforts had been split between Conservative and Brexit-Party members. While pro-Brexit MPs were in the majority, neither party had a clear majority leaving opposition within and without the two parties free to block their efforts. After the snap-election was approved, the Brexit-Party willingly stepped aside from its 200+ parliamentary seats in hopes the Conservatives would take them. Based on the latest polling the Conservative Party has indeed secured enough of the newly freed Parliamentary seats to command a clear majority in Parliament.
The U.K. snap-election is less than a week away, December 12th.
The Pound/Dollar Forecast: Upward Pressure Persists
The GBP/USD began moving higher immediately following the announcement a snap-election would be held. The pair moved up more than 800 pips in the wake of the announcement and then entered a consolidation range. Over the past week, as the certainty of a Conservative victory increases, the pair broke out of its consolidation and moved up another 200 pips. Based on the previous action we can expect this move to extend itself as much as 600 pips or more over the next week. This projection puts the GBP/USD at 1.4000 and very near the 2018 highs.
The risk, in the near term, is resistance at the 1.3400 level. This resistance may keep prices in check especially in the days before the election. If the election proceeds as expected resulting in a Conservative win we can expect to see this pair break to new highs. If not, well if not then we can expect to see resistance at the 1.3400 cap gains and become a point of bearish reversal.