Foreign exchange markets were jolted awaky by British Prime Minister May when she announced she was calling a snap general election for June 8.
Sterling tore higher on the news putting in one of its strongest days in history and rising by over 340 points – or almost 3.5 cents to the pound - versus the Dollar from a pre-announcement level of 1.2565 to a peak of 1.2909.
The pair rose as markets priced in the possibility of a less anti-EU parliament being voted in June, which could soften Brexit negotiations – or in the case of a Liberal Democrat win possibly even see a complete U-turn on European policy.
“This is a strong bull move which now completely changes the technical outlook,” says Richard Perry at Hantec Markets.
In imagery redolent of the yearly festival of San Fermin in which members of the public run with bulls through the streets of the Spanish town of Pamplona, Perry said Sterling traders may now too be running with bulls, adding, “the range trade has been broken and with the rush to close short positions there could be a phase of a bulls’ run.”
Since peaking and during the Asian overnight session the pair has pulled back to 1.2800 according to FXStreet’s Haresh Menghani.
“The slide, however, was bought into, with the pair reversing majority of early losses to currently trade with slight negative bias just below mid-1.2800s,” says Menghani in a note dated April 19.
Menghani sees a short-term consolidation as the most likely short-term forecast, before a continuation higher.
“From a technical perspective, short-term indicators point to overstretched and hence, warrant near-term consolidation before the next leg of up-move,” said the FXStreet analyst.
Even if they break above 1.2900 there remains a strong resistance ceiling at 1.2960-5; meanwhile support lies at 1.270-5.
Perry does not think the pair is as overstretched or overbought, suggesting more upside is possible.
“Momentum indicators are strengthening with the Stochastics advancing into bull territory and the MACD lines also improving. The RSI is now at 70 and this will be an interesting moment to see the bull reaction,” says Perry in a note to clients dated Aprill 19.
Where to next?
Perry sees resistance at yesterday’s high at $1.2904, with “subsequent resistance is $1.3000 and $1.3060.”
Commerzbank’s Karen Jones is more unequivocally bullish, arguing for a move up to at least the 55-day MA at 1.3012.
“The break looks directional and we will assume an upside bias above 1.2623 (200-day MA). We would allow for allow for further strength to the 55-week MA at 1.3012,” said Jones.
Meanwhile David Sneddon, a technical analyst with Credit Suisse in London is looking for the Pound to be unbothered until the early-1.30's are tested:
"GBPUSD has surged higher to brush aside the key range highs at 1.2617/24, trendline resistance from December last year and the falling 200-day average, to test medium-term resistance at 1.2839 – the 38.2% retracement of the June/October 2016 decline.
"Extension through here is required to confirm a large base which would then signal a bullish core trend change for 1.3059 initially, then 1.3121. A bigger obstacle is seen at the 50% retracement level at 1.3255."