Pound Surged After UK PM Calls for Early Election

By: Eddy Peng Apr 19, 2017
Sterling rose to a more than six-month high against the dollar on Tuesday after British Prime Minister Theresa May called for an early general election, boosting hopes that a victory could reinforce her party’s majority in government ahead of Brexit negotiations. After fluctuating at the bottom level since October last year, the pound soared by more than 2.2 percent yesterday backed by a fundamental reason, closing as high as 1.28409. May announced in Downing Street that she was planning on calling for an early election on June 8, three years ahead of schedule, for the purpose of the need to strengthen her power in divorce talks with the European Union by bolstering support for her Brexit plan. “The way the market is reading it, it is viewed as something that creates a more stable political outlook for Brexit to happen, which in itself is viewed as a positive,” said Alvise Marino, FX strategist at Credit Suisse in New York. Technically, the daily sudden surge yesterday broke to significant technical barriers including the 200-day average moving and the upper trendline in blue, leaving the current level that lasted for more than six months to enter a new stage for moving further. Its dramatic move also led to the potential reversal of the 200-day moving average, and in turn an upward 200 days MA could support pound’s increase later. Although this move was mainly caused by a fundamental reason rather than a technical one, the technical pattern significantly changed due to the soar. ACY-GBPUSD-Daily-190417 Pound Surged After UK PM Calls for Early Election

Chart 1: GBPUSD Daily

The drop in U.S. Treasury yields pressured the dollar, while U.S. manufacturing output dropped for the first time in seven months. U.S. Treasury yields fell to five-month lows as raised concerns over France’s first round of presidential elections this weekend and ongoing geopolitical tensions such as North Korea’s nuclear test increased demand for safe-haven U.S. debt. The dollar index, which measures the greenback against a basket of six major currencies, was down 0.85 percent at 99.4. Due to the declined MACD, it may drop further to find technical support at 200-day moving average of 98.818. ACY-USD-Index-Daily-190417 Pound Surged After UK PM Calls for Early Election

Chart 2: USD Index Daily

Another critical issue in U.S. that really affects the market is its tax reform agenda. The tax-writing committee of the U.S. House of Representatives will begin holding hearings on a Republican tax reform proposal next week, the panel’s chairman said on Tuesday, even as the timeline for overhauling the tax code slips toward late 2017. Tax experts say the proposal’s future depends on whether the White House backs it. President Donald Trump said on Tuesday that his tax reform plan would create “a level playing field” for U.S. industry, which is a phrase widely viewed as referring to some kind of border tax. If Trump succeed to move his tax reform forward, it may help reinforce the performance of the dollar index and the U.S. economy as well. Turning back to look at sterling’s performance with RSI (14), it’s found at 71.0586 which is over than the median line (50), revealing that it’s currently trading at the bullish market. Since we do not see evidences of USD’s rally at this moment, sterling may continue to be in the rise this week. ACY-GBPUSD-Daily-RSI-190417 Pound Surged After UK PM Calls for Early Election

Chart 3: GBPUSD Daily – RSI

 
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