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It's a Snap!

Tuesday, April 25, 2017

Today's Spotlight Market

UK Prime Minister Theresa May shocked the financial markets when she announced a snap general election upon Parliament's return from the Easter Recess last week. While the Fixed Term Parliament Act was designed to prevent the early calling of elections, a 2/3 majority vote in Parliament can supersede the Act, and Parliament voted overwhelmingly to approve a UK general election on June 8, 2017.

Fundamentals

This completely unexpected move shocked the financial markets as the British Pound rallied and the FTSE 100 sold off. Looking at the polls now, Theresa May's Conservative Party has a large lead, and many political observers expect her to increase her majority in Parliament. This would give the Prime Minister more flexibility during the Brexit negotiations, as she could afford to have some Conservative defections during some of the difficult Brexit votes. However, there are a couple of caveats. This will be the 4th consecutive year with major UK elections. 2014 saw the Scottish referendum, the general election of 2015, and the 2016 EU referendum. Also, observers of UK politics will always point out the early general election of 1974, when Conservative UK Prime Minister Ted Heath called an early general election and lost his majority to the opposition Labour Party.

Technical Notes

The tremendous rally in the Pound caused the Pound to break through the 200-day SMA, changing a mild bullish pattern into a stronger one. The slope of the fast moving 20-day SMA is now on a sharp upturn as well. Resistance can now be found around the 1.2900 level while support is near the early March 1.2150 levels. 14-day RSI at 66.49 is in mildly bullish territory.

Dale Jennings, Commodity Analyst