The British pound surged after Prime Minister Theresa May decided on calling a snap general election because she wants to secure a big parliamentary majority before the Brexit talks intensify. She noted that the election is needed to secure stability of government and that Brexit negotiations would have been hampered by a later vote.
The British pound rose over 400 pips following the surprise announcement. Initial polls show that PM May has a strong lead and is expected to secure political support for all decisions in the coming months.
Price action on the GBP/USD daily chart shows the surge took out the 200-day SMA and that the next resistance level may come from the psychological 1.3000 region. It is around that area that price could also form a bearish butterfly pattern. Point D is targeted with the 141.4% Fibonacci expansion level of the X to A leg and the 161.8% Fibonacci expansion level of the B to C move. If valid we could see a major reversal target the 1.2600 region. If the pattern is invalidated, further upside may target the 1.3320 level.
The trade: Sell GBP/USD at 1.3050 with a stop loss at 1.3150 and a take profit at 1.2750. The Risk/Reward Ratio is 1:3