European Open: GBP on the ropes, second Scottish Referendum resurfaces

High inflation, weak growth and unfavourable yield differentials have continued to weigh on the British pound. And talk of another referendum have not helped.

Brexit 2

Asian Indices:

  • Australia's ASX 200 index fell by -51.7 points (-0.77%) and currently trades at 6,634.30
  • Japan's Nikkei 225 index has fallen by -0.88 points (-2.343%) and currently trades at 26,395.56
  • Hong Kong's Hang Seng index has risen by 299.12 points (1.42%) and currently trades at 21,367.11
  • China's A50 Index has risen by 258.72 points (1.86%) and currently trades at 14,204.54

 

UK and Europe:

  • UK's FTSE 100 futures are currently up 12 points (0.17%), the cash market is currently estimated to open at 7,199.46
  • Euro STOXX 50 futures are currently up 14 points (0.4%), the cash market is currently estimated to open at 3,489.18
  • Germany's DAX futures are currently up 63 points (0.47%), the cash market is currently estimated to open at 13,367.39

 

US Futures:

  • DJI futures are currently up 58 points (0.19%)
  • S&P 500 futures are currently up 61.75 points (0.55%)
  • Nasdaq 100 futures are currently up 13.5 points (0.36%)

 

20220615futuresFX

 

Nicola Sturgeon (First Minister to Scotland) claims her party is close to unveiling plans for a second Scottish Referendum “very soon indeed”. The topic has resurfaced several times since the first referendum in 2014, although Westminster has so far been successful at quashing any such move. Yet traders were seemingly unnerved by Sturgeon claims that they have found a legally secure path to hold a referendum, without Westminster’s consent.

Of course, we now need to wait for these plans to be unveiled. And we’re yet to find out if the supposed loophole found by Sturgeon is concrete to get past Westminster. But we do know there will be a hard pushback from the UK government, but until then the pound appears to be on the ropes.

The pound’s TWI (trade-weighted index) recently fell to its lowest level since January 2021 – which was its second worst day this year. The move was also amplified by the fact that GDP has contracted for two months in a row.

 

20220615gbpWTI

 

A relatively hawkish ECB coupled with the prospects of a second Scottish referendum catapulted EUR/GBP to a 14-month high but stopped just shy of breaching 0.8700 before pulling back. But as European traders are yet to fully react to this development then it provides upside risks for EUR/GBP heading into this session. And whilst the majority of economists disagree, markets are pricing in a 25-bps hike from the SNB tomorrow – and that could catch many Swiss franc bears off guard and send GBP/CHF lower unless Westminster have successfully quashed the latest bid for a referendum.

 

Guide to Pound sterling

 

20220615eurgbpFX

A strong trend has developed on the 4-hour chart alongside rising volumes. Prices have now entered a period of consolidation which could present a continuation breakout. The 10 and 20-bar-eMA have provided support and the shallow retracement remains well above a 38.2% Fibonacci ratio. Our bias is bullish above 0.8660 so would welcome any low volatility pullback to that area. The initial target is 0.8700 and then the 0.8720 high.

 

Economic events up next (Times in BST)

20220615calendarBST

 

 

How to trade with FOREX.com

Follow these easy steps to start trading with FOREX.com today:

  1. Open a Forex.com account, or log in if you’re already a customer.
  2. Search for the pair you want to trade in our award-winning platform.
  3. Choose your position and size, and your stop and limit levels.
  4. Place the trade.

 

 

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account