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Jignesh Davda

Sterling Positioning Ahead of the Election

With GBP/USD volatility slowing in the early week I can’t help but wonder who would be positioning in the pair at this stage. The risk to reward certainly does not seem to be there to get long. Trying to short the pair would be fighting the strong upward momentum seen last week, and generally since the start of September. After all, the pair is up roughly 10% since then.

It seems more likely that speculators will look to position after the election results provide a bit more clarity. Up until now, it appears the markets are positioned for a Tories victory. In that context, there is certainly down side risk if it does not play out that way.

For that reason, I think that investors positioned long will take advantage of any short-term rallies to square up positions ahead of Thursday’s election.

Aside from the election this week, further developments in the US-China will be a major driver for the markets. With planned tariffs on Chinese imports scheduled for December 15, market participants will be speculating on if a trade deal will be reached ahead of the deadline. In early trading today, there are signs that the markets are not that confident as risk appetite is seen declining. The German benchmark DAX index is not too far from breaking to a monthly low while the S&P 500 futures have eased lower after a failure near last week’s high.


Technical Analysis

Resistance from a weekly and a monthly chart are in play for GBP/USD. However, the larger time frames don’t offer much of a signal for the near-term.

On a weekly chart, the pair faces resistance at 1.3145. This level held the pair lower on a weekly close basis in the second half of 2018. On a monthly chart, the 50 moving averages is within proximity. This is an indicator the pair has not traded above since 2014.

GBPUSD Daily Chart

The smaller time frames point to a range with resistance in the 1.3165 to 1.3175 area. The 100-hour moving average has held the pair higher in early trading today. This puts a bit of emphasizes on today’s low of 1.3132.

A range seems to be the most likely scenario for the pair in the near-term. In the event it continues rallying, the next area of interest to the upside is likely 1.3200.

Bottom Line

  • GBP/USD is trading in a range in the early week. Volatility is expected closer to Thursday’s UK election.
  • Aside from the election, developments in the US-China trade war stand to impact the pair. Some risk aversion is seen in early trading on Tuesday in the equity markets.
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