The Pound attracted most of the attention yesterday as the summer drop in volatility and participation slowly comes to an end. The UK currency came under significant pressure early in the morning when a recent poll about the Scottish Independence vote hit the wires.
The poll reported that the No vote leads 53% to 47% for the Yes vote but that illustrates that the gap between the two votes has narrowed significantly. Just a month ago the gap was at 14 points while now it has dropped to only 6. It goes without saying that the report caused a flight to safety in the markets as investors looked to liquidate part of their Pound-long positions in fear of a potential move to independence from Scotland.
The Pound dropped significantly on the back of the report and the sell off drove the currency to the 1.6450 area. It is true that the Pound didn’t receive the support some analysts expected from the Manufacturing and Construction PMI reports as the former dropped and the latter didn’t have much of an impact on the currency. Today the release of the Services PMI is expected to print lower as well and the recent string of results makes the case for a change in monetary policy even more difficult and that translates into more losses for the UK currency.
The Euro was mildly lower against the Dollar yesterday having hit the 1.3110 mark earlier in the week. The Single currency is under pressure on the back of the market’s expectations for further action from the ECB on their meeting this week. There is a lot of speculation on what the ECB President Mario Draghi can do to stimulate growth in the region via further easing. This downbeat mood regarding expectations for the ECB meeting should translate to more losses for the Euro but we want to warn our readers about the opposite scenario as well.
As we have explained in our recent reports it will not be easy for Mario Draghi to move forward with further easing measures at this time, mainly because the last round of measures that the ECB announced will start to be implemented this month. Hence it is unlikely that the central bank will announce another set of measures at this time. They do have plenty of other options on their hands that constitute easing and we could still see a further decline on the Euro on the back of such a decision.
But at the same time we would like to warn you that it is possible for any decided steps to be considered “not enough” from the markets and the Euro to explode higher. Thus a certain amount of caution is needed and large positions against the Euro should be avoided at this time – play it safe for the time being.
Economic Calendar
Time
Currency
Event
Importance
Forecast
Previous
8.30
GBP
UK Services PMI
Medium
58.5
59.1
9.00
EUR
Euro-zone Retail Sales (MoM)
Medium
-0.3%
0.4%
11.00
USD
MBA Mortgage Applications
Medium
2.8%
14.00
USD
Factory Orders
Medium
10.9%
1.1%
Times are in GMT
TECHNICAL ANALYSIS & LEVELS
EUR/USD
GBP/USD
FTSE 100
Gold
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