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Anzo Lim

Negative Outlook for GBP Reached Its Highest in the Past 8 Months

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A positive outlook that the conservative party will likely win the majority in next week’s election has propped up the pound sterling in a longest surge since this June. Yet according to indicators reflecting investors preference and positions, option traders expectation for a bearish pound reached its highest in the past 8 months.

Professional traders are weighing between 2 factors: confidence about PM Boris Johnson victory and doubt about the opinion polls outcome. History shows that public opinion polls have failed to forecast the result of Brexit vote and the conservatives lost of majority of seats in the 2017 election. Compared with the Labour party that promises about nationalization scheme and economic reform, investors that long the GDP prefer the Conservatives to win and push forward the Brexit negotiation, as well as carry out market-friendly policies.

As the election voting day draws near, investors are using the relatively cheaper USD call option to hedge off the risks. The skyrocketed pound hedging cost reflects peoples concern about the election outcome has persisted. For traders, the hedging cost in the upcoming 2 weeks is 25% higher than that 2 weeks before the election in June, 2017. The pound is surging so fast that MTM index suggests the currency is overbought.

GBP/USD daily pivot points: 1.3133---1.3149

S1: 1.3118          R1: 1.3180

S2: 1.3079          R2: 1.3203

Edited by Anzo Lim

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