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July 7, 2022

How Will Pound React To Johnson's Resignation?

Frank Cabibi

UK Prime Minister, Boris Johnson submitted his resignation this morning as well as several cabinet members. Both the pound and the equities market flew higher in response to this drastic change. Heavy uncertainty resides in these markets still, and bleakness on England's economy continues to put pressure on the pound.

Post-Resignation Pound

Boris Johnson's leave may dullen the sentiment on the pound further down the road as the rampant inflationary conditions caused by quantitative easing policies are taking its toll on the currency. Higher borrowing costs were meant to help quell that issue, but CPI refuses to yield.

resignation
GDP MoM

The former Prime Minister arguably couldn't have left at a worse time monetarily-wise, especially as monthly GDP numbers continue to come in lower and lower since the beginning of 2022. If this trend continues, the pound's performance will likely get worse during the third quarter.

UK's services sector took another dip this month after PMI data fell to a two year low. The services sector makes up of 72% of England's output, so a further decline will keep hurting overall growth.

Trade Setups

GBP/USD

resignation

GU flies higher today after Prime Minister Boris Johnson resigned and added a new level of uncertainty around the economy's outlook while waiting for a new Prime Minister. Price is also coming up with higher risk sentiment as it nears the highs of the day. Resistance lies around the 1.21500s after bouncing up from a lower low. The overall down trend on this pair suggests that this quick pop could result in another short setup.

EUR/GBP

resignation

EURGBP came down hard today as price enters a clean support zone. The pair was in a steady uptrend while this retracement looks like it could be a buy setup on the 1D timeframe. Price came down into the 61.8% fib level paired with a support level around the 0.84500s.

GBP/CAD

resignation

This pair might see some bullishness in the short run after bouncing from previous support and forming a double bottom on the 4H timeframe. A move higher to resistance on the falling trend line could be a short setup on this pair since the overall trend is still downward. A break under the double bottom could mean another drop towards 2013 lows in the 1.5200s.

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