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Cable Chaos As Traders Brace For First UK Exit Polls

Courtesy of ZeroHedge View original post here.

Update (2:25pmET): With the first exit polls expected in fewer than three hours, the pound has extended its drop as traders abandon their positions ahead of what’s expected to be a wild night for the British currency.

The pound was recently down 0.8% against the greenback at $1.3093. It was also down 0.6% against the euro, buying €1.1785, though over the past half hour, it appears to have bounced off its lows as traders adjust their positioning before ‘go-time’.

The first polls are expected at 10 pm London Time, and are expected to provide a first look at the results of what could be a closely fought election. The last batch of polls famously suggested that a hung Parliament – one where no party wins a majority – remains within the margin of error. Still, the currency has rallied sharply since September and is up 10% from a low below $1.20 reached in early September.

As traders try to make sense of the early exit polls, the FT reminds us that, for markets, the most important area to focus on is Labour’s “red wall” in the north and center of England.

In the last election, the Tories flipped seats in Middlesbrough South and East Cleveland, which turned blue for the first time in 25 years.

The seats to watch are between the Vale of Clywd in northern Wales, through Merseyside to Great Grimsby in Humberside. The ridge touches 50 constituencies the Tories hope to win.

In the West Midlands, Mr Johnson needs just 22 votes to win Dudley North. The Labour majority in Crewe and Nantwich in the north-west is only 48 votes; Stockton South in the north-east requires 888 votes to change hands – seats which voted to leave the EU in the 2016 referendum.

This map has more on that:

The Times of London has built an interactive map showing how seats have changed over time. As they remind us, there are 63 seats that have consistently backed the prime minister in every election dating back to 2005, when Tony Blair won his third term in a landslide victory.

Traders around the world are expecting to put in 24-hour shifts just to trade the pound through what could be a dramatic night. For everybody who hasn’t been following every pip in cable since the summer, Bloomberg has a guide to the key levels traders should watch out for as the results come in (courtesy of Vassilis Karamanis, an in-house FX and rates strategist at BBG):

Bullish:

  • The first key technical resistance for the pound comes around $1.3380-90, where the year-to-date high and an Elliott Wave 5 projection coincide.
  • First, pivot resistance at $1.3278 may absorb some buying pressure; a crucial level to watch out for is $1.3453, which represents the key 61.8% Fibonacci retracement of sterling’s losses since April 2018
  • Also in play could be the 55-monthly moving average, now at $1.3412

Bearish:

  • Investors short the pound may be looking to trim their exposure only after the upper end of the symmetrical triangle that kept the currency confined before Dec. 3 is breached; this is currently seen at $1.2964
  • Strong support should be met around or within $1.2756-$1.2806, an area that includes the 55-daily and 55-weekly moving averages as well as the low on Nov. 8
  • Support from a three-month trend channel comes at $1.2627 while the Sept. 20 high — also a breakout point — is seen at $1.2582

Range-bound:

  • In case the pound fails to sustain a big move in either direction, short-term levels to watch for include $1.3013, the Oct. 21 high; $1.2993, the 21-daily moving average; $1.3232-37, Upper Bollinger Band and pivot resistance

Source: Bloomberg

We’ll have more once the first exit polls trickle in.

* * *

For FX traders, the big day has finally arrived. With FX volatility nearing all-time lows, Britons will head to the polls on Thursday in the first general election since 2017.

As the chart below shows, the results of this election could have profound implications for the British currency.

In a sign that few traders are betting on a sure thing, cable risk reversals show hedging activity has hit its highest level since the EU referendum in June 2016.

For ordinary Britons, the big day marks the culmination of a five-week campaign that has left many exhausted from overexposure.

One truck driver who spoke with the AP wearily expressed his frustration at the British political establishment.

“Basically I just want it over and done with now,” he said. “Nobody’s doing what they said. Everybody’s lying.”

Compared to its US equivalent, the House of Representatives, there are a lot of delegates in the House of Commons. British elections are decided by the outcomes of races in 650 districts. Most won’t change hands. Only 70 did in 2017, and 111 in 2015. But, as Bloomberg explains, “it’s the ones that do that determine who governs.”

Unfortunately for traders in Europe, that won’t begin to take shape until early tomorrow morning. According to Bloomberg, most of the early reporting districts have safe majorities. But an exit poll will be released as soon as voting ends, giving traders an idea of whether the Tories secured a clear majority, or whether the final total will be close.

According to the FT, Johnson pleaded with voters on Wednesday night to deliver a decisive majority for the Tories, which would allow the PM to take Britain out of the EU in January and start the task of negotiating a new trading relationship with the 27-member bloc.

Johnson has based his campaign on a promise to improve Britain’s position in the world. He has promised to establish a looser relationship with Europe and closer ties with President Trump’s US. Meanwhile Jeremy Corbyn, the leader of the opposition Labour Party, is pushing an agenda that has been described as socialistic.

“If we can get a working majority, we have a deal, it’s ready to go,” Johnson said Wednesday as he watched pies being baked at a catering firm in central England. “We put it in, slam it in the oven, take it out and there it is – get Brexit done.”

Polls have shown the Tories with a clear lead, though that has apparently narrowed in recent weeks, with a poll released late last night revealing that a hung parliament – ie a situation where no party wins an outright majority – is still a possibility.

There has been an unprecedented get-out-the-vote effort in the UK during the five-week campaign, which is one reason analysts have warned that the polls should be taken with a grain of salt.

A YouGov survey using modelling that was successful in predicting the result of the 2017 election showed on Tuesday that the Tories were on course to win 339 seats, Labour 231, the Liberal Democrats 15 and the Scottish National party 41, during the upcoming election. That would suggest a Tory majority of 28, down sharply from the 68-man majority predicted in an earlier poll.

Corbyn is offering old-school socialism, including a big expansion of the state, the nationalization of industries including water, energy, rail, broadband and postal services, and hundreds of billions of pounds of extra borrowing. Labour has relied on a message claiming this is the “most important election in a generation” to try and turn out as many young idealists as possible (take a look at the Guardian for more Labour messaging on display).

During the campaign, the Tories have targeted a type of voter known as the think-tank approved “Workington Man.” Voters who meet this characterization are defined as “typically older, white, non-graduate male” from a northern town. The man is named after Workington, a town on the UK’s west coast.

The town has taken on outsize importance because it’s one of the first constituencies to report in the UK’s “Wall of Red” in central and northern England. Traditionally Labour-supporting, Johnson must break through and lead the Tories in these districts to victory if he hopes to secure a wide ruling majority.

As Thursday morning wore on, the pound extended its losses to trade down 0.6% at $1.3116 before paring declines. Analysts blamed the drop on a rebound in the dollar, bolstered by comments made during  Christine Lagarde’s first press conference as ECB president.

On the other end, EUR/GBP climbed 0.7% to £0.8491, looked set to climb third day.

For a rundown of the most important districts and when to expect results, see the chart below:


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