Sterling, FTSE 100 Don’t React as Violently as Many Expected
- UK General Election ends with hung parliament
- Markets reacting, but not as many expected
- Technical outlook for cable, GBP crosses, and FTSE 100
Learn more about how ‘Brexit’ is expected to impact UK markets in our market forecasts.
The UK General Election ends in a hung parliament, not the most desirable outcome – markets are reacting. But not in the way many expected. According to a Bloomberg poll from Wednesday, analysts had a range of expectations for various outcomes – a hung parliament was viewed most bearish for sterling, closely followed by a Labour victory. The range of expectations was wide for GBPUSD, but generally clustered in the 122/123 range. It's trading 12738 at the time of this writing. Far from a disaster.
As discussed in recent webinars, the area in the mid-127s was viewed as key support, and as long as the 5/31-day low (12768) held, then the bias was neutral to bullish. So, while today wasn’t a disaster the break is concerning as cable declines back below support and into a range of price action carved out in recent months. Barring a sharp intra-day turnaround, old support will become a source of resistance; the 12750/75 area is likely to turn out to be significant in terms of piquing selling interest.
Looking lower, there is a zone of support consisting of levels from March/April and the 200-day in the vicinity of 12615/550. The neckline of the bottoming formation from October to April arrives right around 12500. All-in-all, cable is at risk of further losses near-term, but may find sponsorship in the not-too-distant future. Rallies back to previously mentioned resistance could be viewed as selling opportunities for would-be shorts.
GBPJPY is down about 1.5% at the time of writing, quickly closing in a key trend-line rising up from October. It’s also in confluence with the 200-day MA. We’ll watch and see how the market responds to this trend-line – a sharp reversal would forge the line even further as support, while a break would shift focus towards the April low at 13558.
Today’s outcome broke this cross below a key level of support running back to December, where it once held as resistance on numerous occasions. This spring it became a source of support, but now that it has broken once again the ~17100 area is viewed as resistance. The 200-day, like all-things-GBP, is close to coming into play along with support around 16700.
With kiwi rallying strongly lately, this pair is the weakest among the cross-rates. Similar support as discussed in GBPAUD from back in December broke with ease last night. The 200-day is currently offering no support, with sterling-kiwi trading about 120 points below. It may become resistance should we see a daily close below. There is a good area of support not far below in the 17430/475 vicinity, arriving by way of numerous inflection points from back in February/March.
This pair is currently trying to hold onto a confluence of trend-line support from January and the November high. We’ll see it if it wants to turn around here, but if not then we’ll be looking sub-16800 where March/April support and the 200-day come into play.
The footsie is surprising many, as not only did futures show a modest initial drop of about 75 bps, but buyers quickly pushed it back into positive territory. The cash index is up roughly 50 bps at the time of this writing. Keep in mind, the FTSE 100 consists of primarily multi-national corporations who earn their profits outside the UK borders; meaning a weak sterling boosts corporate earnings. The pop brought back into play a top-side trend-line from Jan/Mar which we have discussed on numerous occasions. It is viewed as significant resistance along with the 6/2 reversal day high at 7599. The area around 7400 is viewed as major support should the market fail; it’s where the top-side trend-line running back to 2013 arrives. It has been a turning point several times this year. The UK index is caught between the lines for now.
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---Written by Paul Robinson, Market Analyst
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