FX FUNDAMENTAL ANALYSIS
likely keep interest rates on hold and liquidity plentiful. Again adding to the downward pressure on the UK currency.
Chart A shows ‘UK Sterling Index’: the pound’s trade weighted basket performance.
As we can see from this chart, sterling has recently broken below some key supports, when measured in its trade-weighted basket. The area around 82 looks important now as possible resistance in any rally. Whilst on any further move lower we can watch for a retest back to 79.80 - a level we have not visited since December 2013.
Chart A. UK Sterling Index because if
the out campaigns are
successful (and let’s not forget that an anti-European party, UKIP, won 13% of the vote at last year’s UK general election) then there are ramifications for the continuance of the UK as a whole.
We need Scotland
The Scottish National Party or SNP, led by the charismatic Nicola Sturgeon, are committed to Scotland remaining in Europe, regardless of the outcome of the UK referendum. Raising the possibility of Scotland trying to gain its own independence once again and in turn to the breakup of the UK, as a whole.
Te prospect of trying to negotiate 66 FX TRADER MAGAZINE April - June 2016 to talk about
an exit from the EU whilst at the same time trying to placate a pro-Europe, pro-independence Scottish Government is not an appealing one. This goes some way
weakness pound
the value of the sterling. Remember the
pound weakened sharply ahead of 2014 Scottish Independence vote, when it seemed that the independence movement would carry the day.
This time round it seems likely that sterling will be sensitive to the success of the out campaign. Because that success implies not only a change from the status quo but also the possibility of a UK breakup. The Bank of England will, in these circumstances,
Hard to call right now
to explaining the renewed in
Markets will inevitably follow the opinion polls closely on this issue. However given the degree to which the pollsters miscalculated the general election results, they may not provide any kind of reliable indicator as to the thinking of the average UK voter. Betting markets might provide a better guide, indeed they were more in tune with public opinion in May 2015. But I think it’s fair to say that UK centric markets will be skittish over the next three months, or until such time as the in campaign can clearly demonstrate an unsalable lead.
Darren Sinden
Market Research Director Admiral Markets
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