The pound sterling was crushed today after polls revealed a neck-and-neck election race. The UK needs to call an election by June and the market sentiment is that without a clear winner, there will not be the political will to cut the growing deficit.
The market absolutely pounced on this poll and used it to lay a major beating on GBP/USD. After the pair breached 1.5000 that set off a round of stop losses into the 1.47s. It talked rebounded but the gains were capped at just above 1.5000. We expect that stop orders are building above 1.5000 and that they will be punched out on a short squeeze toward 1.5200. Use that move to establish short positions.
Looking at the daily chart, we see 1.44 as the most likely target for cable but if worries about sovereign credit risk continue to mount, we can’t rule out a test of 1.37.