Is Politics About To Knock The Pound Lower?

Originally published by AxiTrader

It's not supposed to happen like this. Electoral reforms in Britain set fixed terms for parliamentary elections. But, armed with what she thought was a massive and unassailable lead in the polls British prime minister Theresa May found a way to circumvent the new rules to call a snap election for June 8.

Initially Mrs May was correct. Her conservative party had an unassailable lead in the polls which looked set to deliver a 100 seat majority - or more - in the Commons after the election. But then the wheels started to wobble.

The proximity of the election seemed itself to push voters back toward Labour. Then the so-called "dementia tax" May released in her manifesto blew up, caused a back flip, and saw polls tighten considerably. So much so that some pollsters had Labour within five or six percentage points of the Conservatives.

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That's latest poll of polls in the FT says Labour is still 9 points behind - a considerable distance. But in the wake of what some say was a pretty poor performance in this morning's debate by Theresa May a Survation poll this morning has the Conservatives at 43 per cent with Labour at 37 per cent.

Given the experience of Brexit and of the poor performance of pollsters (not to mention the 2015 election) if this gap continues to close there is every chance that the uncertainty this brings to the election outlook and to the Brexit process starts to weigh on the pound.

Now, readers know that I have had a bearish bent since GBP/USD failed on multiple occasions below the important 1.3050/60 technical resistance level.

That technical failure conicided with a collapse in the British data flow which has seen the Citibank economic surprise index collapse to -15.7 from +101.7 just 3 months ago. (It's something I wrote about previously.)

Put the two together and the move I'm expecting back to the 38.2% retracement level of the February/May rally at 1.2680/90 remains on the cards.

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GBP/USD has resistance at 1.2880/1.2900.

Interestingly EUR/GBP actually looks like it is topping out. That suggests, and reinforces, my other view that EUR/USD is equally likely to come under pressure. Just likely more so than GBP.

Have a great day's trading.