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Jignesh Davda
GBP/USD

Huge Victory for UK PM Johnson

Boris Johnson took a big risk by calling a snap election but it has worked out in the end. The polls leading into the election for the past few weeks had shown the Tories lead narrowing and even some members of his party were surprised by the margin that they won by.

Johnson acknowledged that some voters may have just “lent” their vote to him, with intentions to vote Labour the next time around. It brought in the message that this election was focused on Brexit which was his intention.

There are still a lot of steps involved in finalizing an EU exit. However, the election results ensures the ball gets rolling. Johnson intends to finalize the exit agreement that was negotiated in October before the end of next month.

From there, there will be further trade negotiations. It won’t be a straight forward process and there will be hurdles. But for now, the markets appear to be content with the results, adding another 2% gain to the exchange rate on top of the roughly 10% seen since the low in September.

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Technical Analysis

GBP/USD saw some wild swings ahead of the election results but then rallied 350 pips on the results. The pair finally topped just above the 1.3500 handle which is a major technical level for the pair.

GBPUSD Daily Chart

The exchange rate has since pared back just over 100 pips and was last seen falling below the 1.3400 handle.

Another notable technical level for the pound to dollar exchange rate falls at 1.3298. This level held the pair lower in late 2018 and the first quarter of this year. I suspect the level has buyers lined up, if the pair were to reach the level.

Bottom Line

  • A Conservative win triggered a surge above 1.3500 in GBP/USD.
  • The pair has since eased back from its initial surge although it seems likely the pair will remain firm into the end of the week as investors reposition on yesterday’s results.
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