Looking at GBPUSD, the pair is waiting for the results of the election. While GBP surged on polls showing Tories dominance, they need 320 seats for a majority. YouGov’s latest findings suggest the Tories winning 339 seats, Labour 231 and Lib-Dems 15. The seat-by-seat system gets Tories 43% of the vote and Labour 34%. The forecast suggests the race has tightened since the previous results on November 27. Tories had a majority of 68 in those results. It is a bit reminiscent of the vote in 2017 when we got a hung Parliament with no majority. Polls suggested a win but there is a chance of Tories not getting the majority.
2017 election comparison
Looking back at the election of June 8 2017, the chart shows the potential picture we might see this week. Tories were set to win in the polls, but failed to get the majority in the results. Initial reaction was strongly bearish as GBP sold off, eventually finding support at 1.26 area. The only thing that saved cable from sinking lower was Theresa May’s announcement later to give more rights to EU citizens post-Brexit, which was viewed as positive by investors. Of course it is a bit different this time as the Brexit deadline has already been extended several times and Boris Johnson’s win could be the final confirmation that we actually leave EU at the end of January. But the initial reaction of GBP is expected the same. A surge in GBP if Tories get that majority or sell-off if they don’t.
Elliott Waves analysis
On the technical side, Elliott Waves were respected very well since spring and suggest we are still in the bullish wave (v) up. This is the final wave up before correction, which is in line with fundamentals of the election day. Once the election results come out, we shall see the end of wave (v). The strength of Elliott Wave analysis is in the combination of technical wave trading and fundamental news and events, that align very well if the wave count is done correctly. it helps to see future price targets and accommodate our risk strategy accordingly.
Today’s FOMC is the last in 2019 and we are expecting Jerome Powell to give us guidance clues for 2020 monetary policy. We are not expecting a change in FED rate so it is all about the press conference after the rate release. While it will be volatile for GBPUSD and we could see movement in the evening, the main impact will come from the election tomorrow. Currently support is at 1.31, hawkish FED could see the retest of 1.30, before potential correcting back for the election day.