To Hold Elections or to Not Hold Elections?

Johnson called on MPs to vote for elections on December 12th, which Corbyn later rejected.

While the ongoing saga between Boris Johnson and Jeremy Corbyn continues, the markets are waiting to hear if the EU will grant an extension of a Brexit deal from the “drop dead” date of October 31st until some time in the future.  As we wait, UK Prime Minister Boris Johnson called on MPs to vote for elections on December 12th.   UK Labour Leader Jeremy Corbyn has rejected the request,  however he did say “take no deal Brexit off the table, and Labour will absolutely support an election”.  This fluid situation may change if the EU grants the extension.  At this time, the most likely extension will be until January 2020.

But one must consider, is a Brexit deal the most likely outcome, as it may just be a matter of “when”?  And if so, what does that mean for the GBP?  Clearly, market participants did not like the day’s proceedings as GBP/USD is down -0.5% on the day near 1.2850.  The pair is consolidating in a rather large resistance zone between roughly 1.2790 and 1.3012 and is holding above (retesting?)  a major downward sloping trendline which come across near 1.2730. 

Source: Tradingview, City Index

On a 240-minute time frame,  a flag formation is clearly visible as the RSI unwinds from overbought conditions.  Depending on the timing of the breakout of the flag (and if it happens), the target could be near 1.3600.  The pair has currently retraced to the 23.6% Fibonacci retracement level from the low on October 10th to the highs on October 21st.  If GBP/USD holds above the 38.2% Fibonacci retracement level at 1.2705, it would be constructive for the pair.  The 1.2705 level is also horizontal support.  Below there is a support zone between the 50% Fib retracement level and the 61.8% Fib retracement level (1.2521/1.2613).  If price breaks through 1.2520, we could be back down to the recent lows near 1.2200 in a hurry.

Source: Tradingview, City Index

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.