Markets have had a surprisingly volatile start after the Easter holidays as the shock news of a U.K. election has caused the British pound to skyrocket against the U.S. dollar. The euro traded in sympathy with the pound and was able to climb above the 1.07-barrier.
The biggest story on Tuesday was however sterling’s roller coaster ride amid U.K. Prime Minister Theresa May’s announcement in Downing Street. When May initially said she would make an announcement outside Downing Street, she offered no further explanation. Consequently, the pound dropped towards 1.2515 as a result of uncertainty. When it was clear that May announced an early election, the pound jumped to fresh highs, breaking through significant technical barriers. The announcement came as a surprise in the market and as a trader we know that surprise moves can be very profitable. And thus, every of our swing and daily signal trades have easily reached the final profit target.
The snap election that will be held on June 8 was called in order to increase May’s majority in the House of Commons before the difficult two-year negotiating period with the European Union.
How high can sterling go? This is precisely the question that interest traders. In the near-term, we expect a continuation of the recent upward move, targeting at the next resistance zone around 1.29 – 1.2920. If sterling breaks through 1.2950 it may head for a test of 1.3050 – the upper resistance level. We expect a stronger resistance around 1.3050 and 1.31 that could limit further gains in the pound. On the downside, we see current support levels at 1.27 and 1.26, barriers at which bulls could take the opportunity to buy sterling at lower levels.
The euro broke through 1.07 and was able to hold above that important price level. We do not expect larger market moves ahead of the French elections as uncertainty prevails, but anything is possible. A next resistance is seen around 1.0750 and the single currency would need to break significantly above that level in order to extend potential gains towards 1.08. A crucial support-zone remains intact at around 1.0640/30.
Eurozone Consumer Prices are scheduled for release at 9:00 UTC but this report could be of minor importance.
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