The Scottish Independence Referendum vote is this Thursday. This is without a doubt one of the biggest events of the week, as many traders out there are preparing for Armageddon. However, I have a different take on this subject, and I think that perhaps the so-called “smart money” does as well. In fact, the charts are starting to suggest this very theme. The GBP/USD pair has fallen off of a cliff. I would first suggest that the market has fallen too far, and as a result there will be a bounce in general. I mean – the markets cannot go in one direction forever, and the pair is oversold on just about any metric you choose. That being said, the candle for the week is a hammer, and it is placed at roughly the perfect spot.
On the weekly chart, the hammer formed just above the 50% Fibonacci level, and the 1.60 level – which is of course a large, round, psychologically significant number. Because of that level, there will be a significant amount of interest by larger players. These areas have been shown to attract large orders time and time again, so as a matter of trading – I tend to use those levels for entries and exits.
Beyond the charts, we have to think about the vote itself. We have to think what is going to happen to Scotland if they leave. We could be talking absolute financial chaos. The first order of business is what currency to use. The Euro isn’t exactly a currency that would serve the Scots well at the moment, with the region already in trouble financially and economically at the moment. Another thing they could do is create their own currency, which would be a massive undertaking to say the least.
The Scottish have had a long proud history of defiance when it comes to the British crown. However, gone are the days of British lords taking advantage of the local populace, and essentially doing as they will. The Scottish enjoy a high standard of living, and have been well served by being in the United Kingdom. With that in mind, I have the feeling that the Scots will stay put. Beyond that, I see the risk to the upside being much larger than the downside. After all, we have been selling off for some time now.