U.K. Parliament is Hung, Drawn and Quartered

A disastrous night for the Conservatives as an electoral swing sees them lose their parliament majority with a hung House of Commons.

The headline says it all really, with GBP/USD falling 2.0 % in the Asia session with just about the worst outcome possible with Brexit negotiations to start next week. P.M. Theresa May is due to speak at 10 am London time this morning with speculation that she will resign becoming one of Britains shortest serving Prime Ministers.

One could say it is the Conservatives who have been hung drawn and quartered with Labour in a jubilant mood. Those readers who may be unfamiliar with the hung drawn and quartered term, it was a particularly gruesome way of being executed in the Middle Ages in Britain.

It is slightly surprising we are only lower by some 250 points on the day as yet again British electorate has surprised the Conservative incumbents within one year. The market may well be waiting to see if the Tories can form a minority government, although their potential partners, the Democratic Unionist Party (DUP) and the Scottish National Party (SNP) would demand a very soft Brexit as their price. It will probably be untenable to the Tories. In short, it’s all a bit of a mess.

GBP/USD

The connotations will play out in due course starting with the Prime Minister’s press conference at 10 am London. GBP/USD is flirting with support at 1.2700 into early European trading. The next support zone lies in the 1.2588/1.2619 area. It contains the 100-day moving average at 1.2619, a previous double top at 1.2600 and the 200-day moving average at 1.2588.

Resistance is at 1.2770 followed by 1.2960, which for the time being, will remain a distant memory.

GBP/USD Daily

EUR/GBP

The halls of power in Europe must be rubbing their hands with glee this morning. The ECB’s quantitative easing programme is increasingly showing it is working, dragging Eurozone growth and inflation of the floor. Now the Europeans will be able to turn off their game theory negotiating models as the British effectively yellow card themselves from the Brexit negotiations before they even start. The European’s biggest worry right now will be if anyone from the other side will actually show up to the first session and who will that be?

The EUR/GBP has rocketed from 8650 to 8830 over the day moving through a series of previous daily highs which now become technical support.

EUR/GBP has support at 8790 and 8770, the March and June highs. After this, we see 8650 which will most likely remain a distant memory for now.

The next resistance is at 8855, the post-Brexit high. The charts, of course, look constructive, but we could possibly pause up here for a while as we have come a long way in a short time. Although, like the Conservatives, I do have a famous last word feeling about that call.

EUR/GBP

Summary

The United Kingdom’s voters have answered Prime Minister Theresa’s Mayday but turning around and sailing away. Her tenure must now be called into question there is no doubt, as will the makeup of the next government and the start of Brexit negotiations. Britain may well find itself back at the polls much sooner rather than later. Whichever way you look at it the uncertainty could see GBP bre-maining under pressure for some time to come.

 

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Jeffrey Halley

Jeffrey Halley

Senior Currency Analyst
Based in Singapore, Jeffrey has over 25 years experience in the financial markets, having traded currencies, options, precious metals and futures. Jeffrey started his career at Barclays Bank in New Zealand. However he has spent most of it in London and Asia.Jeffrey focuses on the Asia time zone across asset classes. A regular commentator on business news TV and Radio, he is originally from New Zealand and holds an MBA from Cass Business School, London.