Scottish Independence Concerns Weigh On GBP
| Sep 08, 2014 06:21AM ET
The GBP-complex has been the biggest loser across the board at the start of the week. The aggressive sell-off is mostly triggered by the latest surveys favoring the yes vote in September 18th referendum for Scottish independence. As the political tensions occupy UK’s headlines, traders adjust positions to avoid being in the wrong side of the play if such scenario materializes. In Ukraine, the pro-Russian separatists violated the cease-fire agreement of last Friday. The EU is expected to impose more sanctions on Russia, including oil firms. The risk appetite is severely limited this Monday.
Scottish independence concerns weigh on GBP
GBP-complex is squeezed by the Scottish independence concerns as latest surveys seem to favor the yes vote. YouGov poll showed 51% “yes” versus 49% on Sunday 7th . The UK will vote on September 18th to decide whether or not the UK should stay united. Besides the psychological impact of such outcome, the union gives undeniable advantage to Britain’s economy. A separation will perhaps weigh on British fundamentals and fuel speculations that the BoE will keep its bank rate at the historical lows for a longer period of time.
This is what markets are currently pricing in. On the spot market, GBP/USD and EUR/GBP gap opened the week. The Cable opened at 1.6196 (vs. Friday close at 1.6327), EUR/GBP at 0.79965 (vs. Friday close at 0.79326). The 3-month cross currency basis versus EUR and USD shows that the GBP is clearly discredited in futures markets. Additionally, the 3-monh GBP/USD risk-reversals plunged aggressively to year lows (see graph) as bets for lower strikes took over the market. The one-month implied vol spiked above 9% (from average 4.30-5.30% band between April-August). The big picture suggests further GBP/USD weakness as uncertainties will likely intensify negative pressures on the GBP-complex walking towards toward Sep 18th.
GBP/USD sold-off to 1.6133 (at the time of writing) and the downside pressures continue. The oversold conditions could trigger some short-covering once the information is digested, yet we prefer staying in the sidelines before taking counter-trend positions. We believe that the US players will follow through the weakness. The key support is seen at 1.6000 (psychological level & 50% retracement on July 2013 – July 2014 lift). Option barriers are solid below 1.6500 through September.
EUR/GBP fully recovered post-ECB weakness and is once again testing offers at 0.80000+. The MACD (12, 26) will step in the green zone for a daily close above 0.80000. Short-run offers are seen at 0.80300/63 (100-dma / Aug 14th high), a breakout above this zone should favor further lift by short-run traders. We do not see significant option barriers above 0.80000 to cap the bullish move for the week ahead. Although, our medium-term view remains biased on the downside, we believe it too early to solidify our long-term portfolio as the upside potential is quite difficult to quantify at the current stage.
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Ukraine/Russia: tensions continue
Ukrainian Defense Minister reported that the pro-Russian rebels violated the cease-fire agreement five times overnight. And the escalating tensions are to trigger more sanctions against Russia including oil companies as Gazprom Neft, Gazprom and Transneft report WSJ. The Russian PM Medvedev qualifies the additional sanctions as “asymmetric” response. USD/RUB consolidates losses at record highs, at 37+. Trend and momentum indicators are comfortably positive, while speculations for tighter policy rates escalate. The Russian Central bank is now expected to announce 50 basis points hike in its key rate (main indicator of Russian monetary stance) to 8.50%, mostly to taper the amplitude of Ukraine tensions on country’s economy. Rate expectations limit the selling pressures, yet the geopolitical risks are not ready to dissipate just yet.
2014-09-08T19:00:00 USD Jul Consumer Credit, exp $17.200B, last $17.255B
EURUSD EUR/USD remains weak as can be seen by Friday's weak bounce. Monitor the recent low at 1.2920. Hourly resistances for a short-term bounce can be found at 1.3000 (psychological threshold) and 1.3110 (02/09/2014 high). In the longer term, EUR/USD is in a succession of lower highs and lower lows since May 2014. The break of the key support at 1.3105 (06/09/2013 low) opens the way for a decline towards the strong support area between 1.2755 (09/07/2013 low) and 1.2662 (13/11/2012 low). A key resistance lies at 1.3297 (22/08/2014 high).
GBPUSD GBP/USD continues its relentless decline, as can be seen by the move below the key support at 1.6220. Another support stands at 1.6000 (psychological threshold and 50% retracement). Hourly resistances can now be found at 1.6233 (intraday high) and 1.6340 (05/09/2014 high). In the longer term, prices have collapsed after having reached 4-year highs. The breach of the key support at 1.6220 confirms persistent selling pressures and opens the way for further decline towards the strong support at 1.5855 (12/11/2013 low). A key resistance now stands at 1.6644.
USDJPY USD/JPY has thus far failed to decisively break the strong resistance at 105.44 (see also the 61.8% retracement and the long-term declining trendline). However, prices remain in a short-term uptrend as long as the support at 104.74 (see also the steep rising trendline) holds. A key support area stands between 103.56 (28/08/2014 low) and 103.50 (22/08/2014 low). A long-term bullish bias is favoured as long as the key support 100.76 (04/02/2014 low) holds. The break to the upside out of the consolidation phase between 100.76 (04/02/2014 low) and 103.02 favours a resumption of the underlying bullish trend. Strong resistances can be found at 105.44 (02/01/2014 high) and 110.66 (15/08/2008 high).
USDCHF USD/CHF has broken the strong resistance at 0.9250. Hourly supports can now be found at 0.9287 (05/09/2014 low) and 0.9250 (previous resistance). An initial resistance lies at 0.9336 (05/09/2014 high). Another resistance stands at 0.9404 (61.8% retracement). From a longer term perspective, the technical structure calls for the end of the large corrective phase that started in July 2012. The break of the strong resistance at 0.9250 (07/11/2013 high) opens the way for a move towards the next strong resistance at 0.9456 (06/09/2013 high). A key support now lies at 0.9104 (22/08/2014 low).
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