It is a bad day for Theresa May and GBP/USD bulls
The first exit polls of Britain’s General Election show that despite their win, the Tories are losing their majority in the UK parliament. This is thought to be the worst possible outcome, because Theresa May will either have to form a minority government or resign. As a result, GBP/USD, which climbed to as high as 1.2977 yesterday, plunged to as low as 1.2635 so far today.
Two questions arise from here: first, could GBP/USD’s selloff be anticipated and, if yes, how? Before the Election, the polls predicted the Tories are going to strengthen their position. Well, the exact opposite happened. So, obviously, relying on preliminary research is not the way to stay ahead of the Forex market.
However, we still insist the Pound’s deep dive did not came out of the blue. GBP/USD is no longer among our premium instruments, but some of our clients, whose subscriptions are still valid, received the following chart before the market opened on Monday, June 5th.(some marks have been removed for this article)
As visible, five days before the exit polls came out, while GBP/USD was hovering around 1.2880, the Elliott Wave Principle suggested the pair might add a few more pips, but as long as the invalidation level at 1.3048 remained intact, “selling the rallies should lead to good results.” We thought so, because the rate entire development since the 1.1739 bottom of the “Flash-crash” in October, 2016, looked like a W-X-Y correction of the larger downtrend, which has been in progress since mid-2014. Therefore, once the correction was over at 1.3047, the downtrend was supposed to resume. Whether it was because the Election results or not, five days after that forecast, the price chart of GBP/USD looks like this:
The pair’s rally to 1.2977 was followed by a swift and sharp decline of over 330 pips. Clouds are growing darker over Britain’s political class, which has yet to deal with the consequences of the last time they asked the people to express their opinion on a given subject. On the other hand, Elliott Wave analysts did not have to wait for the exit polls, since the market had already set the stage for the upcoming disappointment.