Brexit Briefing: How to Trade a UK General Election

Talking Points

The strength of a British Pound given a UK ubiquitous choosing was called for Jun 8 looks tolerable as a choosing should move some-more certainty about both Brexit and mercantile policy.

The domestically-focused FTSE 250 mid-cap batch index is expected to advantage some-more than a internationally-focused FTSE 100 index of a largest London-listed shares.

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The swell in a British Pound given UK Prime Minister Theresa May called a ubiquitous choosing to be hold on Jun 8 is doubtful to be a one-day wonder. Indeed, a allege looks rarely tolerable as an increasing infancy for May’s statute Conservatives will strengthen her palm in a Brexit negotiations to come and concede her some-more leisure to act decisively on domestic policy.

The election, that was authorized by a Westminster council today by 522 votes to 13, will expected outcome in a outrageous infancy for May’s center-right party. A “seats market” usually launched by IG forecasts a Conservative infancy of 100, with a statute celebration winning 375 seats compared with a antithesis Labour Party on 175, a Liberal Democrats on 30 and a Scottish National Party on 50.

Such a outcome would make a tough Brexit, where a UK and a EU destroy to strech an agreement, reduction expected as May would have a clever charge to negotiate a understanding but worrying about hardliners in her celebration rejecting it. That suggests serve gains for a Pound in a entrance weeks, rather than usually a fist on traders who have taken brief positions in a currency.

However, in a nearby term, that brief fist will expected supplement to a Pound’s ceiling momentum. IG customer view information are now promulgation out a bullish signal for a banking as traders are still net brief by a vast margin. Moreover, a GBP/USD daily draft is certain too; a span carrying damaged out from a triangle settlement in place given Oct final year.

Chart: GBP/USD Daily Timeframe (August 2016 – Apr 2017)

Brexit Briefing: How to Trade a UK General Election

Chart by IG

Indeed, a usually warning vigilance on a draft above is a relations strength index (RSI), that suggests a span is now in “overbought” territory, nonetheless usually just. A near-term aim of 1.30 therefore looks eminently achievable, quite as a CME Group FedWatch Tool is now suggesting that a chances of a quarter-point boost in the Fed supports rate in Jun is down to42.3%. That in spin implies that a opening between US and UK 10-year bond yields could slight from a benefaction 115.6 basement points to a advantage of a Pound.

Meanwhile EUR/GBP has tumbled and is technically weak, with a move next 0.75 now looking possible prolonged term.

Chart: EUR/GBP Daily Timeframe (November 2016 – Apr 2017)

Brexit Briefing: How to Trade a UK General Election

Chart by IG

As for a London batch market, a FTSE 100 index of large-cap bonds has depressed as a different association with a Pound has remained in place. At a time of essay it is some-more than 300 points next final month’s record high during a lowest turn given early February. That seems odd, as a Conservative feat would expected be good for stocks.

However, a index has been strike by a vast series of internationally-focused companies enclosed in it, and quite by a series of miners and other commodity-based businesses that have suffered from diseased prices, including a decrease in iron ore to a nearby six-month low.

By contrast, a FTSE 250 index of mid-cap stocks, that are generally some-more closely related to a domestic UK economy, leapt to an all-time high Tuesday and that allege looks set to continue on hopes that a incomparable Conservative infancy in Jun will lead to some-more business-friendly policies.

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Upcoming UK/EU Event Risk

— Written by Martin Essex, Analyst and Editor

To hit Martin, email him during martin.essex@ig.com

Follow Martin on Twitter @MartinSEssex

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