With UK Election Looming, a EUR/GBP Short Has My Vote

Focus: CURRENCIES

Kaye Lee of StraightTalkTrading.com examines GBP price action leading up to the May 7 UK elections and presents a well-timed short position in this currency pair should it reach a given price range.

Whenever news events come around, traders always consider the potential currency impact, but did you know that the majority of speculators will usually show their hands just prior to the event? For proof, we turn to the daily chart of GBP/USD leading up to the UK general elections, being held on May 7.

Although at the time of writing, it is still relatively early—the positioning typically becomes clear in the few hours just before the event—the markets are already showing signs of this type of behavior.

GBP/USD Daily Chart

chart
Click to Enlarge

We see signs of optimism as traders have gone long GBP/USD for the prior two days. Assuming the current situation continues into the election, the strategic trader will have to ask two questions:

  • What will happen if the election turns out as the speculators expect?
  • What will happen if it does not?

The good news is that the logical process is often the same.