Scottish Referendum: How is GBP likely to react by Sean Lee

Over the last 2 weeks we have seen cable trade in a very volatile 600 pip range between 1.6050/1.6650. The market had been building big GBP long positions across the board but reports that the referendum was much closer than expected, and that a Yes vote to independence would see the GBP drop by 10/15%, saw many of these positions panic out of the market.

The referendum is only 3 days away and a No vote still looks likely to prevail, but is by no means certain. So what can we expect the GBP to do over the next few days?

Looking at cable, I’d expect the range of the last few days to continue to hold. The only big danger will be if further polls are released showing that the Yes side are gaining ground. The market still has an underlying bias towards buying GBP, especially on some of the crosses like EUR/GBP and GBP/JPY, so the main risk in my view is to the downside for GBP. I would not rule out the possibility of a crash below 1.6000 on the back of further panic selling and if that happens, then option-related sellers will add fuel to the fire.

Longer-term GBP bulls like me might get that big dip that we’ve been hoping for. If there is a narrow Yes vote in the referendum then there will be plenty of volatility with some bank analysts talking about levels below 1.50 again. I personally can’t see that happening, but you never ever know. If there is a No vote, then the GBP should make decent gains across the board but will be by no means as volatile as a Yes vote might be.

The post Scottish Referendum: How is GBP likely to react appeared first on www.forextell.com.

Leave a Reply

Your email address will not be published.