GBP/USD: long positions trimmed below key 4hr sma ahead of UK elections

Currently, GBP/USD is trading at 1.2924, down -0.26% on the day, having posted a daily high at 1.2980 and low at 1.2908.

GBP/USD has been pressuring the downside of the rising 30th May commencing channel (1.2716-1.2976). Long positions have been trimmed below the 4hr sma 1.2922 in the lead into the UK elections today and exit polls expected shortly after 10 PM BST. The dollar has been better bid across the board as well with the DXY now above 97 although EUR/GBP flows have been cable supportive post the ECB and a drop in the euro. 

What are the various scenarios for today's UK elections?

• Conservative victory with Absolute Majority (Scenario 1) - A Conservative victory with an absolute majority should be supportive initially for the pound. Stock markets would be relieved on the lower corporation tax outlook and a risk-on environment could be the expected outcome. However, with a focus on Brexit and PM May's hardline - "No deal is better than a bad deal" - approach to the negotiations, a hard Brexit outlook could equate to a bearish scenario to the pound eventually - (Note: Remain cautious of a 'buy the rumour sell the fact' trade - a Conservative victory is virtually priced in).
• Conservative victory without Absolute Majority (Scenario 2) - With the narrowing of the polls and a trend that has been continuing, the possibility of a hung parliament should not be ruled out, (When no party has won enough seats to have a majority in the House of Commons). Such an outcome could be highly bearish for the pound due to the uncertainty for markets to deal with. However, in a hung parliament, the incumbent prime minister stays in office until it is decided who will attempt to form a new government - this could support the pound after an initial sell-off. (Note: A hung parliament does NOT necessarily mean a coalition government). 
• Laborist victory (Scenario 3) - A balanced outcome for the pound with initial volatility on the basis of Labour’s manifesto. Initially, a lower pound could be the immediate outcome bias due to increased uncertainty and a reduction of inflows. However, a Labour victory should mean a softer Brexit outlook and austerity would be removed, (Fiscal easing lifting growth and inflation expectations). Higher real yields may offset the initial weakness in the pound. 

GBP/USD levels

Valeria Bednarik, chief analyst at FXStreet explained that the levels to watch today are like follows:

"Beyond 1.3000, the next resistance comes at 1.3047, May's high, en route to the 1.3090/1.3110 region. Below 1.2900 on the other hand, the pair has scope to extend its slide down to 1.2840."

Further levels for the election results on the wide are 1.3122, 26th June low (post EU referendum immediate low), 1.3270, 1.3374 and 1.3429. To the downside, 1.2780, (post EU ref low) 1.2750 and 1.2600.