After last week's general election it would appear that it’s business as usual for the government. An alliance with the DUP has not yet been confirmed, negotiations are still underway. The best outcome for the markets is an alliance between the Tories and the DUP, this would bring stability to the markets. If negotiations fail or if Theresa May resigns we will see more volatility in the pound and the FTSE.
So far the decline in the pound has been limited, which is a surprise because currency analysts predicted a larger drop. This explains why the FTSE did not rally to new highs on Friday. Longer term I expect the pound to decline as the idea of having a coalition government with the DUP increases the uncertainty of a soft Brexit.
The FTSE did rally on Friday and now the pattern has become unclear, simply because there are two ways to interpret the pattern; If the decline to Friday's low at 7449.7 is wave (i) of a five-wave decline, the decline will resume after a bounce to 7570. This scenario assumes that the bull market ended at 7599. If however the FTSE rallies above 7599 we will have an alternate pattern which is a fifth wave in a larger rally in which case the rally could end near 7650.
