So we’re off to the polls as the most hotly contested general election since 1992 gets underway.  With the polls indicating that a hung parliament is the most likely outcome, this is not the most favourable result for the financial markets.  If we were to wake up to a hung parliament tomorrow then there will be further delays to the tough decisions and this could be at the cost of our prized triple A credit rating.  This will push up the cost of our borrowing and eventually whatever government is formed will have to take similar action to that of Greece in order to reign in our government spending.  Now as the situation there has started to claim its first lives in the protests, the worst case scenario is that we see similar civil unrest on our streets.

The selling is still yet to abate in the financial markets as the FTSE commences the day on a negative footing, however it’s recovered from where we were calling it earlier below the 5300 level.  As mentioned in yesterday’s comment, these levels are some 9 percent off the highs set in mid April, which is similar to the recent sell offs we’ve seen during the 14 month long rally, so naturally there will be support around this area.  Technical areas of support for the FTSE are seen around 5250 and 5195 if we head below 5300, but for the bulls they’ll be hoping for a return to the 5445-70 area.

This morning’s economic data comes in the form of PMI services which is expected to compliment Tuesday’s manufacturing data with a small rise.  Then the ECB will announce its interest rate decision (the BOE is supposed to announce today, but has postponed until next week due to the election), where it comes as no surprise that they will hold interest rates at 1% and rather than talking about the economic outlook for the region, they are expected to spend more of their time talking about Greece.  US initial jobless claims will also be closely watched at lunch time as they have continued to gradually drift lower.

The euro tried to find some support and after making an attempt at recovering back above the 1.3000 level it gave up the ghost pretty quickly and even ran down to 1.2800 before finding a few buyers, more of a bear squeeze than anything else and heading back towards 1.2900.  This morning the selling continues after a relatively uneventful night and we’re now below 1.2800.

Cable has remained remarkably flat in the face of EUR/USD’s weakness and is the cross rate to watch today.  In early trade the bears are in charge taking us below 1.5100 in a dramatic hour of selling since 7am, but for now the bulls seem to have summoned just enough strength to take us back to the mid 1.50s.

The euro’s weakness meant EUR/GBP headed further south after its breakout below 0.8600 and at one point we were even dipped below 0.8500.  This morning EUR/GBP is at 0.8490 or 1.1775 for those GBP/EUR followers.

As the election gets fully underway exit polls will attempt to guess the outcome and FX traders will be watching closely.  The real fun will most likely be overnight when volumes are lighter and we could see some serious volatility as the results trickle through in the early hours.

Gold did find the support at previous resistance yesterday but not before making a dramatic run lower shaking out a number of bulls only for it to recover to back above 1170.  This morning its at 1175, but yesterday’s price action formed a big “hanging man” candlestick which is meant to indicate the reversal of an uptrend, so it’ll be interesting to see of the move higher since min-March can be maintained.

Oil has really taken a battering, now back below the $80 which is a significant move to the downside.  Bears will be eying up the $70 mark and after the last couple of day’s price action we could be there in a short space of time, but for bulls they will most likely be looking to add to long positions, particularly if the economic data continues to strengthen.