GBP/USD strength ahead of election day

With just one day to go until Election Day in the United Kingdom, the only thing in doubt is the scale of the Conservatives’ defeat.

Despite Boris Johnson’s surprise appearance last night in Chelsea asking voters to support the government in spite of his complicated relationship with Prime Minister (PM) Rishi Sunak, the PM is preparing for his exodus as the latest polls predict Labour will go on to win one of the largest majorities in British history. 

Voters head to the ballot tomorrow to cast their vote, essentially passing judgment on Sunak’s 20 months in office and on the four Conservative prime ministers before him. Based on the latest polls, voters will elect a Labour government tomorrow - the first since 2005!

GBP/USD bulls on the offensive

While price action on the monthly chart has been toying with resistance at $1.2715, sellers have been reluctant to commit. Noticeably, June did close lower from the level (-0.8%), though the pair failed to make much of a dent in May’s +2.0% push. In fact, I have not seen much bearish pressure emerge from this critical level since the unit shook hands with the base in late 2023.

In terms of the longer-term trend on the monthly scale, a break north of current resistance could be on the cards: price pencilled in a higher high at $1.2448 (1) in January 2023, subsequently followed up with a higher low of $1.1803 (2) in March 2023, which was then followed up with another higher high at $1.3142 (3) in July 2023. We have since seen a possible higher low established at $1.2037 (4) in October 2023.

Supporting a possible break higher, the daily timeframe shows price recently ventured above resistance from $1.2683 after rebounding from a support zone made up of a 61.8% Fibonacci retracement ratio at $1.2604 and a 38.2% Fibonacci retracement ratio coming in from $1.2645. As long as the pair remains north of $1.2683, I see limited resistance overhead until between $1.2817 and $1.2795.

Meanwhile, on the H1 timeframe, short-term price action is on the verge of completing an inverted head and shoulders reversal pattern (some may even refer to this as a complex inverted head and shoulders setup, given the right shoulder looks more like a double-bottom configuration), with the left shoulder calling at $1.2623, the head at $1.2613, and the right shoulder at around $1.2616. As can be seen, price action is within striking distance of testing the underside of the pattern’s neckline, drawn from the high of $1.2702. Of course, should we puncture the neckline, this will prompt chart pattern enthusiasts to plot the pattern’s profit objective, usually derived from taking the value from the head to the neckline and extending this from the breakout point.

The resistance level seen from $1.2721 may concern those considering longs north of the pattern’s neckline, which conveniently aligns closely with the monthly resistance aired above at $1.2715. A dominant H1 push above the current H1 resistance ($1.2721) may be enough to spark follow-through buying, with additional outperformance on the table should a break of $1.2740 (19 June high on the H1) materialise, consequently opening the door to daily resistance mentioned above at $1.2817-$1.2795.