GBP/USD rally had several drivers - Rabobank

In view of the analysts at Rabobank, the rally in GBP/USD that followed yesterday’s election announcement had several drivers. 

Key Quotes

“The notion of strong majority government is generally currency positive since it tends to reduce the prospect of political wrangling.  The USD has also been on the back foot on a reappraisal of optimism regarding the size of Trump reflation bets.  The momentum behind GBP/USD’s gain was fed by a reversal of the substantial short positions that have been built in the market.  CFTC data have suggested that in recent weeks GBP speculators’ short have hit record highs.  As these went into reverse, stops were triggered which added more fuel to GBP’s advance.”

“Further momentum was found as GBP/USD broke through the multi-month trend-line resistance at 1.2637 and the February high of 1.2706.  Technical indicators now suggest that as long as GBP/USD continues to hold above the February high at 1.2706 and the December high at 1.2775 (important levels to watch should a corrective pullback from overbought levels unfolds), the short-term bias will remain skewed to the upside.”

“A break above the resistance zone at 1.29~ would bring into focus various potential targets up to the 1.35/34 area.  That said, while the bullish breakout is a major warning signal for the GBP bears as it caught many of them by surprise, GBP/USD would have to rally above the multi-year trend-line resistance at 1.3320 to improve the long-term outlook.”