Sterling recovers; election tougher and tougher to call

Boris Johnson’s hopes for a large majority that will enable the Tories to ‘get Brexit done look’ show signs of fading, with terrible timing for sterling. The earlier eye-catching dip suggests that persistent risks of an inconclusive outcome are nowhere near priced appropriately after the pound gained as much as 9% versus the dollar since August.
Still, sterling actually turned higher into the second half of Europe’s Wednesday session. A combination of profit taking after GBP/USD’s 114-odd pip drop from Tuesday’s near 9-month highs, plus pre-Fed statement caution probably accounts for easing pressure. Sentiment wafting back from the final day of campaigning might be playing a part, though it would be peripheral.
Wednesday’s most recent opinion poll, by Opinium looks a likelier prop. It showed the Tory-Labour gap was still narrowing, but the Conservatives were only down 1 point, at 45% with Labour up 2 to 33%. That points to a less drastic outcome than YouGov’s latest multi-level regression and “post-stratification” study. Conducted early this week, YouGov’s data crunch predicted a Conservative majority of 28, down from as much as 68 around a week ago
A broader look at UK assets shows that sterling and a relatively narrow group of domestically focused shares is still where the impact of any market upsets will be focused.

Chart points
GBP/USD’s chart is by no means ominous heading into the biggest sterling risk event of the year. Tuesday’s 1.32 top in context was a first attempt to break May’s $1.3174 high. The rate was marginally above it at last look. Assuming caution returns as the voting begins tomorrow morning, traders will rely on $1.3109, 4^th December high and implied support as rough divider of market friendly or unfriendly outcomes. The news blackout that will begin tonight, after at least one further poll, may see the pound drift around current prices and $1.31s ahead of early exit polls on Thursday night. A drop below the next important support region largely referenced by 17^th October’s $1.2989 high, would be the final verdict that Boris Johnson has failed to secure a viable majority. With lots of shades of grey in between, GBP/USD should still operate above late 1.29s in the case of a smaller majority than the Conservatives hope for, though the $1.338 March peak (not pictured) probably requires a solid win by the incumbents.
GBP/USD – Daily [11/12/2019 17:07:25]

Original from: www.forex.com