GBP/USD: Three Reasons To Doubt YouGov's Boris Boost

FXStreet  |

Pixabay, Albrecht Fietz

  • GBP/USD has been advancing as YouGov's poll projects a landslide Conservative victory.
  • The market is not entirely buying it for three reasons.
  • Further political developments and trade headlines are set to move markets today.
  • Thursday's four-hour chart is showing a critical downtrend resistance line.

The biggest Tory majority since 1987 is what YouGov's large poll projects for Prime Minister Boris Johnson, and pound bulls like it. GBP/USD is trading around 1.2950, extending its gains as investors prefer the certainty of the PM's Brexit deal and market-friendly policies.

YouGov's all-important Multilevel regression and post-stratification (MRP) method is considered more sophisticated than standard surveys. Moreover, the firm spoke to no fewer than 50,000 people, a broader sample than the usual 1,000. And for markets, perhaps the most important fact is that it predicted the big-picture result of the 2017 elections – a hung parliament.

According to the MRP poll, the Conservatives would win 359 seats, a comfortable majority of 68. Labour would lag with 211, and the Scottish National Party (SNP) would advance to 43 seats in the House of Commons.

YouGov MRP poll Elections 2019 UK Whopping Boris victory

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Source: YouGov

Three reasons to remain cautious

While sterling gained ground, it failed to break above the cycle high at 1.3013. Why?

First, other opinion polls have already shown double-digit leads for the Tories, and YouGov's MRP mirrors the 11% gap that it projected in its recent standard survey.

Second, the poll has probably missed out on the most recent political development and does not reflect anything that can happen until election day. The only survey that really counts is on December 12th when Brits cast their votes.

Third, the substantial lead for the Conservatives may cause complacency at the ruling party's headquarters. Labour leader Jeremy Corbyn may rally his troops while Johnson could refrain from significant campaigning to avoid making mistakes. Ask the Democrats across the pond about how complacency can affect an election.

Reactions to YouGov's MRP and new opinion polls will likely shape sterling trading today.

Beyond the UK elections

US-China relations have soured after Trump signed the Hong Kong human rights bill into law. The legislation supports protesters in the city-state, to the chagrin of Beijing, which promised to retaliate. The news somewhat supports the safe-haven US dollar.

The greenback also received support from upbeat economic figures just before the Thanksgiving holiday. The economy grew by 2.1% annualized in the third quarter, better than 1.9% initially reported. Perhaps more importantly, durable goods orders rose more than expected on all measures.

While the Federal Reserve's preferred measure of inflation, Core Personal Consumption Expenditure (Core PCE), missed expectations, the general picture is positive and vindicates the Fed's upbeat approach.

Liquidity is set to be thin later in the day, as US traders are on holiday. Trump may still tweet about China, of course, and move markets.

Overall, UK politics will likely dominate pound trading today.

GBP/USD technical analysis

GBP USD Technical Analysis November 28 2019

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The technical picture has significantly improved for pound/dollar. Momentum on the four-hour chart has turned positive, and it broke above the 50, 100, and 200 Simple Moving Averages. It is capped by downtrend resistance that has already touched the price three times – making it considerable.

If GBP/USD breaks above downtrend resistance, which is around 1.2950 at the time of writing, the next cap is 1.2970, a swing high last week. Further up, the November high of 1.2985 and the October peak of 1.3013 await sterling. Next, 1.3045 and 1.3080 are eyed.

Looking down, support awaits at 1.2915, which capped cable early in the week. It is followed by 1.2890, which provided support last week, and by the stubborn support line of 1.2820.

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Equities Contributor: FXStreet

Source: Equities News

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