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Currency Outlook: Scottish Independence Referendum

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Will Scotland choose independence?
Alberto M.


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Last week ended with a slight recovery of the pound after its fall after the publication by the Sunday of the poll on the Scottish Independence. In general, it was a bad week for the main currencies of Europe. The cut on Euro interest rates and the announcement of the ABS plan still is weighting on EUR.

Most of economic data for USD was as good or better as expected, with the exception of unemployment data, which was higher than expected. Market participants will learn if this will have an impact on USD monetary policies this week. The Federal Open Market Committee meets this Wednesday and Janet Yellen speaks on Thursday.

In the geopolitical context, the Ukraine – Russia conflict is still affecting the markets. However, after last Thursday speech by Barack Obama, it is possible that the issue with ISIS may start to have a bigger impact on the markets.

USD Outlook:
Last Friday’s numbers continue to exhibit the strength of USD, particularly when compared with the European currencies. However, the last unemployment numbers show that there may be a slowdown in USA economy. Moreover, the QE procedure carried out by the Fed is ending next month.

On Wednesday, the Fed meets and it is possible that the economic forecasts for USA may change. It is even possible that on Thursday, Janet Ellen may give a hint on a new tamper after QE finish on October. In fact, it is even possible that some subtle hint about what is going to happen with interest rates will be released on Thursday. Compared to EUR and GBP, this is going to be a good week for USD.

EUR Outlook:
The Trade Balance of the Euro Zone will be released today, however, the echoes of the decrease in rates and the announcement of the quantitative easing procedure to start next October still weight on EUR. In addition, Scottish Referendum will have an impact on the evolution of Euro. Whatever happens with Scotland may be a sign for other independence movements all over Europe. The outlook is that this will be a mediocre week for EUR.

GBP Outlook:

Sterling lost ground last week after the release of vote polls predicting a “Yes” for Scotland Independence. However, the concessions from the British Government may have calmed down the situation. The odds lean to a No vote, but until Friday everything may change. If SNP leader Alex Salmond independence claim are not supported by the voters, GBP will finish the week strengthened. A Yes vote would weight down GBP.

In addition, this week some important economic indicators of GBP health will be released, in particular, markets participants should pay attention to the CPI, PPI Input, RPI and Retail Sales. Nevertheless, the prediction for these releases suggests that GBP will have a good , but volatile, week, if a vote against Scotland Independence is the outcome of next Thursday Referendum.

JPY Outlook:

The major events which will determine the evolution of Japanese Yen this week are the speeches by Bank of Japan Governor, Haruhiko Kuroda, which may reveal hints on the future BoJ monetary policy, and the release of Trade Balance next Wednesday. However, neither of these events seem to change the last weeks trend of a mediocre performance by JPY.

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