If Theresa May were a forex trader here decision to call an early election while being favorite to get a landslide majority and then see it all slip away is the equivalent to making a lot of small trades in a ranging market before leveraging to the maximum just prior to non farm payrolls and seeing your whole account wiped out in a single trade. Thanks to Mrs. May’s election call last Thursday, Friday 12 June 2017 was a very busy day for Valutrades with volumes reflecting volatile markets and clients experiencing large P&L increases or decreases depending on which way around they had been positioned overnight leading into the results announcements. Now the dust has settled, a weekend has passed with relatively little further shocks it’s time to take in where the UK currently stands, how Europe’s getting on and what are the global implications and most importantly how the forex markets might react.
The first big test will be for Theresa May and the conservative MP’s getting the queens speech through parliament with the help of the DUP (the leading Northern Ireland political party) lending the required votes for a majority. If this goes through then we might just be able to assume it’s steady as she goes and government will continue on the course to deliver Brexit as advertised along with some more austerity and pro business agenda. While this is not quite the “strong and stable” government promised it will shift focus away from the UK. This may lead to the FTSE100 looking at recent highs again and GBPUSD moving back into the 1.27 – 1.30 range.
If the queen’s speech doesn’t get through this is where things will get really interesting. Will Jeremy Corbyn get his chance to form a minority government? Most likely he would fall at the same hurdles as Theresa May in getting support from the smaller parties to pass bills in parliament so the UK would most likely head to the polls again. George Osbourne the previous Chancellor of the Exchequer was busy this weekend putting the knife in Theresa May saying she was a dead woman walking. If another election was called this would almost certainly be the case. Whatever the outcome one thing is certain financial markets hate instability and this will definitely drag on both the FTSE100 and GBPUSD so expect both to trade lower and there to be more volatility as polls try once again to predict uncertain outcomes.
In private there must have been a lot of European politicians with smug faces enjoying watching the results of the UK elections come through. Publicly however there has been less comments than one would have expected as European politicians will be breathing a sign of relief that they will be able to take a stronger hand into Brexit negotiations and a focus has been taken away from Europe’s own internal troubles. There is even more calls for a softer Brexit approach. This would be positive for Europe which should be good for Europe and see the DAX and EURUSD trade higher.
Just last week Santander had to step in to assist troubled Banco Popular. 9 years ago that would have been headline grabbing, doom forecasting stuff. This time around it’s merely backstory on a mostly flat EURUSD. If a focus on UK elections and Brexit subsides maybe this will trigger more focus on a weak banking sector and problems with Greek and Italian debt. So far this hasn’t happened but if it does expect weakness across all European markets and the EUR.
Rest of the World
For the last 6 months it has seemed that Donald Trump has been taking all the headlines. A shock UK election result and some added middle east tensions centered on Qatar must be a welcome distraction for the global news readers. For traders trading currency pairs such as USDJPY or USDCAD it hasn’t given too much direction. We are actually in a period of extremely low volatility which doesn’t make much sense to anyone following all the news headlines. So far the UK elections have not been the catalyst to unlocking global volatility some traders have hoped for. Most good traders are still sitting on their hands waiting for the catalyst to come or trading the ranges.
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