General Election takes shine off Pound Sterling; Euro to bounce?

Some say that markets tend to spend more time ranging sideways than trending up or down. For the FTSE 100 Index, this is certainly true. At 7,500 the index is only a couple of hundred points above its peak established in the late nineties.

For forex traders, Cable, its recent surge has flattened into yet another choppy sideways pattern. Prices are see-sawing in a tight range (1.280-1.300). A chilling factor is the general election, which is now set on the December 12.

Who will win? Many polls say the Conservative party. But we all remember what happened the last time in GE17. The then sitting PM lost her 20+% lead over Labour over the election campaign. By the time voting ended, she lost her majority in Parliament. Unsurprisingly, there is a growing mistrust towards these early polls. Traders are probably taking profits and stay on the sidelines for the time being. There is no point in being brave so early in the campaign when many variables could potentially alter the outcome.

Technically, the short-term support at 1.280 is holding back the correction. But if this fails, prices may drop to the next support at 1.260, where the 50-day moving average is residing (see Featured Chart).

For the Euro, the recovery rally in October that pushed prices above 1.115 has faltered. In particular, the rate has regressed beneath the 50-day MA once again (see below). Given EURUSD near-term choppiness here, one seemingly has to take short-term contrarian positions. That is, buy setbacks and sell rallies. I anticipate a rebound from the 1.100 support.

Lastly, it is worth highlighting the continuing rally in the Chinese CNY against the USD. Why is this important? Because this shows that the Sino-US tariff war may be approaching a truce – a factor that is pushing US stocks into the record highs. As long as the rate stays below 7.10-7.00 US stocks may continue its ascent.

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