This morning the verdict came in that Scotland voted to remain within the United Kingdom. In reference to what impact this is already having on the currency markets, we have noticed GBP strength across the park. The GBPUSD extended to a two week high this morning (1.6522), which is roughly where the pair was trading before investors became flustered by “YES” momentum gaining speed.
Taking a quick look at some of the minor GBP pairs, the EURGBP has declined to a fresh two-year low (0.7808), the GBPAUD has recorded its highest valuation since March (1.8472) and the GBPJPY has surged by over 200 pips (180.675). Now that the Scottish referendum is nearing a conclusion and acknowledging that the Bank of England (BoE) are edging closer to raising rates, I am expecting the GBP to rally for the remainder of 2014.
The other major mover overnight was the USDJPY, with the pair progressing to trade at 109. This upside move occurred after the Japanese government cut its overall economic assessment overnight, expressing that private consumption is “struggling” to recover from the April sales tax.
This admission from the Japanese government has clearly signaled to investors that the Bank of Japan (BoJ) will at some stage increased stimulus, therefore the markets have already begun pricing in future JPY weakness. With the Federal Reserve confirming on Wednesday evening that Quantitative Easing is concluding next month, investor attraction towards the Greenback will likely continue throughout September. As a result of these two factors, the USDJPY rally is not likely to end anytime soon. The next major resistance level on the Monthly timeframe can be found around 110.660 and as long as economic sentiment for both economies remains consistent over the remainder of the month, this pair is heading towards that direction.
After recording a fresh 2014 low earlier on Thursday (1.2833), the EURUSD went on to recover losses and conclude trading at 1.2923. This is surprising, bearing in mind US economic indicators were viewed positively on Thursday (Initial Jobless Claims fell to 280,000). It is possible the upturn in valuation was linked to the probability of political uncertainty within the United Kingdom appearing unlikely as Thursday progressed.
I remain bearish on the EuroDollar and confirmation of German Producer Prices contracting this morning will pressure the EURUSD. Potential support can be found around 1.2858 and the current 2014 low, 1.2833.
Published On Fri, Sep 19 2014, 0814 GMT