After a historic victory of the Conservative Party in last week’s election that redrew the political map of the UK, the pound surged to marginal record-highs against the Norwegian krone and other major currencies on Friday.
The pound reached an intraday high of 12.2170 against the krone after reports showed that Boris Johnson secured an overwhelming majority at the election, but the krone managed to pick up some support by the end of the day and close the week at 12.0290. Still, pound bulls opened today’s trading session with a significant gap to the upside to trade at 12.0920 against the krone, as of 7:05 a.m. London time.
The election results will allow Johnson to deliver on his Brexit plan and take the UK out of the EU by January 31. While a hard Brexit has been avoided, the real challenge might be negotiating the future trade relationship between the EU and UK, which according to Johnson, can be signed in the next 11 months.
Johnson’s win should also lead to an increase in UK house prices by around 2% next year which have been hit by years of Brexit uncertainty, according to Rightmove.
Later today, the UK flash PMIs for the manufacturing and services sector should see a slight increase in December. Market expectations are set for 49.1 points and 49.6 points for the manufacturing and services PMI, respectively.
From Norway, markets await the November trade balance report after the country’s trade surplus plunged to NOK 5.9 billion in October. Energy prices are slightly higher on Monday, with Brent crude trading at $65.56 at the time of writing.
From a technical standpoint, the GBP/NOK pair opened with an upside gap of 270 pips which may support the krone during the week. The strong pinbar candle formed on Friday and a bearish RSI divergence also suggest that technicals may send the pound lower again.