Upcoming Scottish Referendum Dominates Headlines

The upcoming Scotland referendum completely dominated UK economic headlines last week, with the GBP/USD falling to its lowest level since November 2013 (1.6051) when the prospect of an independent Scotland continued to gain unexpected momentum at the beginning of the week.

From here, comments from Bank of England (BoE) Governor Carney that an interest rate hike can be expected around Spring 2015, alongside “NO” votes for Scottish independence regaining the lead, encouraged the Cable to recover losses.

The Scottish referendum occurs this Thursday and with such a period of political uncertainty uncommon for the UK, this pair should continue to move unpredictably over the next few days.

If “NO” votes win the majority, the GBP/USD has the potential to move back to the 1.66 area. This is where the pair was trading before the “YES” vote began to be priced into markets. However, if “YES” wins and Scotland becomes independent from the UK, it will be difficult to forecast what could happen to the pair. Downside pressure should accelerate, with it even possible the Cable could depreciate by a sudden 10%.

From a technical standpoint on the Daily timeframe, the GBP/USD has surprisingly re-entered the bearish channel which looked certain to have concluded only a week ago. With the Scottish referendum now only days away, this pair is expected to continue trading with high volatility.

Potential resistance can be found at 1.6350 and 1.6441, while support is located around 1.6190 and the current yearly low, 1.6051.


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