Scotland will take center stage over the next few days as the world waits for the outcome of the referendum, however, this week is not only about Scotland. The Federal Reserve in the United States unveiled its economic projections for the future, and markets responded with extreme volatility.
The USDJPY pair reacted the most to the announcements, and the pair broke higher even before the Fed announcement and press conference. It was a move that can only be considered as impulsive and has all the chances of breaking the all-important 110 level for the Yen. If one is even measuring the possible extension on the pair, then the impulsive move should go to a minimum of 114. Then there is still room for an upturn in the currency.
With the Fed tapering its stimulus program, and the tough economic situation in Japan, we should see the JPY weakening some more.
The EURUSD also lost ground and broke previous lows by reaching 1.2850, on the upbeat of the US economy and its economic projections. The only question now seems to be where the bottom-line will be.
The only currency pair that was not provoked by Yellen’s press conference, or the Fed outcome, was USDGBP. As we know, there’s a good explanation for that: the Scottish referendum. Recent polls suggest that the results of the Scottish referendum will be extremely close, and the difference between the two outcomes will lie with just one or two points.
How would this affect the GBP as a currency? We expect the GBP to be highly unpredictable at this time, regardless of the outcome of the referendum. The reaction of the currency should be stronger if Scots vote for independence. There is the Quebec precedent when the Canadian Dollar suffered more than a 5% loss, and it might be a measure for what the GBP will suffer if Scots were to go alone.
On the other hand, if Scotland decides to stick within the union, the upside may be limited and we might only see a relief rally on the GBP, and even that to be sold, as market participants will weigh that the US dollar side of the pair didn’t react much at the FOMC event.
Regardless of what the Scots will decide the next day, the secession genie is out of the bottle. Trade the above currencies and more with any of our approved forex brokers.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
