GBP/USD awaits the referendum (video)
By Kira Iukhtenko, FBS analyst
Last week the British pound was dragged to a 10-month low versus the US dollar, pressured mostly by the Scotland Independence Referendum fears. This week is eventful in the United Kingdom. Inflation data on Tuesday, BOE minutes and employment data on Wednesday, Scotland referendum and retail sales data on Thursday.
September policy meeting minutes will be an important release for the markets. Despite the risk of Scotland leaving the UK, the BOE seems to maintain an upbeat view on the economy. Let’s remind you that in August 2 MPC members out of 9 supported an immediate rate hike. Hawkish tone of the meeting minutes could support the GBP/USD recovery.
However, the rallies should be limited ahead of the Scotland’s vote on Thursday, September 18. If Scotland leaves, there will be a high uncertainty over the currency and the debt split. Investors are concerned as Great Britain will lose its “safe haven” status in case of a breakup.
The GBP decline found support at $1.605o (100-week MA) and recovered to $1.6275. As a result, the cable closed a large bearish gap, formed last Monday. The $1.6275/6300 area is resistive for the cable. Pay attention to a long-legged doji candle and the bearish engulfing on the daily chart – in the current risk-on environment investors are uneager to buy GBP. Break above $1.6300 could open the way to $1.6460 (March lows, top of the weekly Ichimoku, 38.2% Fibo from the 2007-2008 selloff). Support is seen at $1.6150, $1.6060 and $1.6000. A “yes” vote on Thursday will clearly trigger a massive GBP sale, opening the way to the levels below $1.6000.