Trader, analyst and instructor with a 6-year experience

GBP/USD hurt by referendum fears

By Kira Iukhtenko, FBS

The current GBP selloff is triggered by the expectations of the Scottish Independence referendum. The vote is scheduled on September 18. The most recent poll released on Sept. 6 showed Scottish separatists gained a majority for the first time. It means that more than a 300-year old United Kingdom stands on the edge of falling apart. Markets are worried about the potential consequences of a «Yes» vote: will Scotland be allowed to use the pound? Will Scotland share the UK debt burden? The closer the referendum gets, the higher the market uncertainty becomes. Pound will likely remain under pressure in the coming weeks.

From the technical viewpoint, last week GBP/USD broke below the descending channel support ($1.6460). On Monday the pair gapped down, opening below the $1.6300 mark. This is 38.2% Fibonacci from the 2013-2014 rally. According to our forecasts, referendum fears will likely pull the cable down to $1.6000. This is 50% Fibonacci retracement from the 2013-2014 rally.

The $1.6000 mark is expected to limit the decline. Pound has already lost a lot over the past 2 months, retracing down from the overpriced levels. And, to be sincere, what fundamental reasons do we have to short the pound so aggressively? Both UK and US economy are moving in the same directions with the central banks planning policy tightening in the year 2015. However, a «Yes» vote on September 18 could trigger a GBP drop below $1.6000.

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