‘No’ Scottish votes to cause upside rally in GBPUSD

Jameel Ahmad, chief market analyst for FXTM, says he expects the “no” voters to win the majority in the Scottish referendum and forecasts an upside rally in GBPUSD as a result.

The Scots are voting on Thursday to decide whether or not to remain in the UK.

He said: “Despite another robust economic performance from the UK this morning with retail sales up 3.9% compared to August 2013, the GBPUSD pair has traded cautiously as we head into the afternoon session. The lack of buying pressure in the Cable displays the nervousness investors are showing as voting takes place for the Scottish referendum. I am not expecting this pair to move much until voting concludes this evening.

“Although I openly acknowledge that I never thought the vote would be this close, I continue to expect a ‘NO’ vote to be confirmed tomorrow morning. However, in the event that the  “YES” camp is victorious, where the Cable goes to thereafter is going to be exciting.

“When the ‘YES’ vote began to be priced into the pair, the Cable accelerated south towards 1.6050 and, initially, I would look for the pair to return to that level. From here, I expect the pair would make downside moves towards the November 2013 low of 1.5853, and it is likely the price will close the weekend around this level. A gap in the market when trading begins next week should be expected and we are probably looking at the GBPUSD trading around 1.55 by the middle of next week.

“As long as ‘NO’ is the outcome, I expect an upside rally for the pair to take place with the Cable concluding the week in the mid-1.65s. This seems like a sensible initial expectation, because the pair was trading around this area before “YES” momentum began to fluster investors. I would expect the pair to progress from this level within days though because the Bank of England (BoE) have now finally rewarded investors with a clear timeframe of Spring 2015 to expect a rate rise. Throughout August, investors lost patience with the Bank sending mixed signals in regards to when a rate rise can be expected.

“It should also be noted that for the second straight month, two members of the Monetary Policy Committee (MPC) voted for a rate hike. This shows that a divergence of opinion towards when the Bank should begin raising rates is certainly emerging within the MPC, and a UK rate rise is finally nearing closer. As long as Scottish independence doesn’t materialize, I am expecting investor attraction towards the GBPUSD should return fairly soon.”