GBP/USD Traders Are Nervous As The Next 48 Hours Crucial

Scottish independence vote is making the GBP/USD traders nervous. Scottish Independence vote results are going to be announced on Friday Morning. GBP/USD had made a recovery of almost 300 pips before the FOMC Meeting this month. It seems a downtrend has started and if the Scottish Independence vote is yes, it can mean GBP/USD will fall into a strong downtrend and can reach the 1.50 level once again. Market participants are clearly concerned about what a possible Scottish secession from the United Kingdom could mean for the British Pound. Looking at short-term (one-week) implied volatility, the expectations for a shock to exchange rates is at the highest level in four years – currently 15 percent, where it was below 3 before the fateful YouGov poll released on September 7. Meanwhile, risk-reversals (used to measure hedging costs for a big market move) of the same duration were the most bearish on record – substantially more bearish than the height of the 2008 crisis. The risk in this event is the lack of definable consequence. Scotland voting ‘Yes’ can significantly disrupt the UK’s economic stability. Though the opinion polls are close, the market still seems leaning towards ‘No’. The polls close at 21:00 GMT.

Looking at the referendum first, a yes vote could trigger a decline back to 1.50 in this pair, while a win for the no camp could see it get back to 1.6600. Due to the uncertainty surrounding this referendum and the potential for Scottish independence, we think that the larger market reaction could come on the back of a yes vote, while a no vote could see an initial knee-jerk move higher in the pound before it starts to fade. The extent of upside for GBPUSD on Friday could depend on the margin of victory for the no camp. If they win by only a narrow margin, as we expect, then GBPUSD upside could be limited.

0 Comments