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Forex snapshot

Scottish independence fears have driven GBP/USD lower, while good German trade balance figures are unable to hold up EUR/USD.

Euro and US dollar notes
Source: Bloomberg

Scottish referendum driving GBP/USD lower

Monday, like the previous Monday, saw European currency traders reassessing the risk of Scotland becoming an independent country and the implications it would have on the Pound. The weekends poll saw the ‘Yes’ vote for independence take the lead for the first time, something only a couple of weeks ago would have been seen as unthinkable.

This morning has seen GBP/USD floating some 500 pips lower than where it closed the previous month. In just over two months the cable rate has now dropped over 1000 pips, and this morning it is some 6.35% lower than its year highs set at the beginning of July.

So where now for the heavily oversold GBP/USD? Certainly the $1.60 level is a physiological level of support that also coincides with the 100-week moving average.

Under normal circumstances the fact that Bank of England governor Mark Carney is speaking today, in Liverpool at 11.45am, would be cause for currency-market caution, but developments in Scotland could continue to drive the markets.

Spot FX GBP/USD chart

Positive German data unable to lift EUR/USD

Yesterday saw Germany post much better-than-expected trade balance figures, as the export-driven economy began to feel the benefits of the sustained weakness in EUR/USD. However, the euro has continued to fall following the aggressive move it had last Wednesday after Mario Draghi’s speech. The markets are continuing to factor in the increase in negative interest on banks’ cash deposits and the impending targeted long-term refinancing operation strategy.

The economic data backdrop has not been enhanced by this morning’s French trade balance figures, coming in worse than expected. Of course, Thursday’s French and German inflation figures along with the European Central Bank’s monthly bulletin will be on many people’s radars. Mario Draghi will also be speaking at a financial forum in Milan in the evening, an opportunity for greater clarity on the ECB’s current thinking to be disseminated to the public.

As the markets had been hoping for, the ECB has embarked on stimulus to help the eurozone, and the pressure remains for the EUR/USD rate to continue heading lower. The longer-term support can be found at $1.2775, both the March and July lows.

Spot FX EUR/USD chart

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