Get 40% Off
These stocks are up over 10% post earnings. Did you spot the buying opportunity? Our AI did.Read how

Sterling Plunges On Referendum Fears

Published 08/09/2014, 07:05
Updated 03/08/2021, 16:15

It took a while, but after the disappointment of Friday’s August payrolls report had been absorbed, US markets eventually resumed their normal service of pushing higher on bad news and closed at new record highs, as the probability of a move up in US interest rates got pushed back into the second half of next year at the earliest.

Friday’s payrolls number was particularly disappointing, given how positive most of last week’s economic data had been. This has prompted some to dismiss Friday’s number as a bit of an outlier that could well get revised higher when next month’s jobs number is released.

Nevertheless, some of the speculation that had been building that last week’s data improvements might bring forward the timing of a US rate hike was pretty much laid to rest by Friday’s disappointing number, as well as the downward revision to June’s number, though it won’t alter the timing of the Fed’s tapering program which is due to finish at the end of October.

As a result of Friday’s record US close, markets in Europe are set to open higher this morning, though events in Ukraine remain a concern given the fragility of the ceasefire, while in the UK nervousness over the Scottish referendum vote is likely to act as a drag on the FTSE 100, and FTSE 250.

As the Scotland referendum vote moves firmly into view today’s focus is likely to be on the latest opinion poll that has put the “Yes” camp in the lead for the very first time and the “No” campaign’s headless chicken response to it.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads .

For quite some time investors had dismissed the prospect of a “Yes” vote as an outlier, but recent opinions polls have shifted that perception and this has been no better demonstrated by the plunge in sterling in Asia this morning.

Any increase in uncertainty always makes investors nervous and we could well also see weakness in the share prices of companies that have a significant presence in Scotland, but it should also be remembered that we are only talking about an opinion poll here, with the actual vote still 10 days away, which is likely to mean quite a lot more volatility in the coming days.

One thing is certain, if we get this sort of volatility on the prospect of a “Yes” vote, can you imagine the reaction if we do get a “Yes” vote? It’s not likely to be pretty.

EURUSD – the euro appears to have found some support around the 1.2920 area, but still closed lower for the eighth week in succession. It now needs to overcome resistance at the 1.3020 area to suggest a rebound towards 1.3110. A move below 1.2920 argues for a move towards the 1.2790 level in the coming weeks. The 1.2790 level is the 61.8% retracement of the up move from 1.2045 to 1.3995.

GBPUSD – the pound has plunged in Asia gapping below 1.6280, and through the lows this year at 1.6250 and looks set to push down towards the 1.6000 level which is a 50% pullback from the 1.4820/1.7190 up move. The pound needs to recover back through 1.6280 to eliminate this downside risk, and argue for a return to 1.6520.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads .

EURGBP - the euro has broken beyond trend line resistance from the August highs at 0.8000 in Asia trading and could well see a move towards 0.8040, and even 0.8085. Support should come in around 0.7970.

USDJPY - the US dollar has thus far been unable to push through the 105.50/60 thus far and while below the risk remains for a slide back lower towards 103.50. This remains a huge level given it was the recent high from the end of last year, as well as the 61.8% Fibonacci retracement of the decline from the 2007 highs at 124.13 to the lows 75.58 in 2011. A move through 105.60 argues for a move towards 109.

Equity market calls

  • FTSE 100 is expected to open 4 points lower at 6,851
  • DAX is expected to open 40 points higher at 9,787
  • CAC 40 is expected to open 8 points higher at 4,494

CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

Original Post

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.