British Pound In Free Fall As May's Election Gamble Backfires
ActionForex | Jun 09, 2017 05:21AM ET
Sterling tumbles sharply and broadly as the UK election is now very likely proved to be a serious blow to Prime Minister Theresa May and the Conservatives. While the Tories would still get the most seats, exit polls showed that it's going to lose majority and get only 318 seats, down -13 from prior parliament. On the other hand, Labour would probably set 267 seats, up 35. That means UK is now heading to a hung parliament and that is seen by many market participants as the worst case scenario. Much uncertainty would be injected into UK politics, economic policies and most importantly, the Brexit negotiation with EU. And it clearly showed that May's bold decision for a snap election has backfired and it's now even uncertain how long May will stay as Prime Minister.
Technically, GBP/USD's break of 1.2768 support now revived the case of near term reversal. That is rise from 1.2108 has completed at 1.3047 and deeper fall would be seen to 1.2614 key support level. Decisive break there will affirm the view that consolidation pattern from 1.1946 has completed at 1.3047. In such case, the larger down trend from would be resuming for a new low below 1.1946.
EUR/GBP also resumed recent rise from 0.8312 and took out 0.8786 resistance. Next near term focus is 0.8851 and decisive break there will bring further rally to 0.9304 key resistance. It's too early to say whether the larger up trend from 2015 low of 0.6935 is resuming. We'll monitor the structure of the current rise to assess the outlook.
GBP/CHF also resumed the fall from 1.3067 and is now heading to 1.2213 key support level. The medium term consolidation pattern from 1.1635 should be finished at 1.3067, ahead of 38.2% retracement of 1.5570 to 1.1635. Sustained break of 1.2213 should confirm this case and would likely resume the larger down trend through 1.1635 low.
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On the data front...
Japan M2 rose 3.9% yoy in May. China CPI accelerated to 1.5% yoy in May, PPI slowed to 5.5% yoy. Australia home loans dropped -1.9% in April. German trade balance UK productions and trade balance will be the main focus in European session. Canada will release employment data in US session.
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