Mark Carney was the man in focus yesterday as he provided a diplomatic and politically neutral evaluation of the struggles that Scotland would face if they weren’t able to formalize an agreement to share the Pound, which would be likely as “a currency union is incompatible with sovereignty”.
Mr Carney said that Scotland would need to gather billions of Pounds in foreign exchange reserves to become their own lender of last resort and ensure that the country was able to stand up to any financial fall-outs, such as the one we’ve been witnessing for the last six years. Scotland is already on the way with its reserves, apparently having access to some £15bn. But as the recommended bare minimum reserve is 25% of GDP, they will need to find at least another £20bn to have a chance and the most successful currency unions have significantly higher reserve percentages.
The Bank of England governor also acknowledged that there would likely be a migration of financial firms that are domiciled north of the border, as they would seek to maintain the position of having the Bank of England behind them as lender of last resort. RBS and Lloyds have both said that they will move their Scottish operations to England if there is a Yes vote next week.
53% Say No to Independence
Overnight we saw the No camp get a boost from the latest Survation poll, with 53% in the No camp to 47% in the yes, so a six point lead clawed back, but no room for complacency from Westminster.
What this meant for forex traders?
In the markets, this all translated to a tiny bit of a strength in Mr. British Pound. Nothing to compensate for the losses we’ve seen in recent weeks, but enough that it didn’t close the day with its head in its hands. The FTSE was also one of the only markets in Europe to trade higher, though the move higher was, once again, marginal.
Europe suffered slightly on fears of what could be, when Moscow reduced the size of their gas exports to Poland by around 20%. The move is designed to stop Europe re-exporting gas to Ukraine and is a more direct reminder to Europe of just what sort of hand Putin could be holding as we head into autumn.
Further problems in Europe include a warning from France that they will once again miss their budget deficit target and by some margin. This might have been an easier conversation to have, had Germany accepted plans to create an infrastructure fund, but Berlin’s hard line on austerity will make for some awkward conversations in Brussels.
As the ECB gears up to buy bundles of debt in the coming weeks, there are fears that there won’t be enough supply. Already we’ve seen yields tumble as prices rise on what stock is available. Last year saw just €77bn of these bundles of debt issued, so Mr Draghi coming in with a €500bn cheque is going to be left with an awful lot of change. Mr Draghi needs the banks to issue a lot more high quality asset backed securities, but the banks don’t need to issue high quality ones, they need to bundle up and ship out the risky ones, something the ECB will be reluctant to want to buy.
Land Down Under
Overnight we’ve seen Australian employment numbers smash expectations, which provided a brief lift to the Aussie, which has otherwise been falling heavily in the past few days as a result of realisation that the US and the UK are on the rate rise path.
A few days ago, Australia released a stronger than expected GDP reading for Q2, showing that the economy expanded by 0.5% versus the 0.4% growth estimate. Bear in mind though that this is less than half the pace of growth logged in for the previous quarter, which chalked up a 1.1% GDP reading.
As for Aussie consumer spending, it’s a mixed bag, as spending has more or less stabilized while sentiment remained weak. The latest retail sales release printed a 0.4% uptick as expected, slower compared to the previous 0.6% gain.
To sum it up, even though the Aussies showed a bit of a strength here and there, they aint back on their feet just yet! As RBA Governor Stevens mentioned during the central bank’s latest rate statement, the economy might continue to see below trend growth in the coming months and that China’s economic performance might be crucial to Australia’s growth prospects.
Today’s calendar is very speaker heavy and data light. Most of the speakers are from the ECB and we don’t expect anything too radical. Futures markets are pointing to an open higher when Europe gets underway shortly.
Intraday Forex Technical Levels
EUR/USD 4-hour: Consolidating.
Invest Diva Likes: Short positions below 1.2947 with targets at 1.2874 and 1.2818 in extension.
If Pair Goes Nuts: Above 1.2947 look for further upside towards 1.3020 and 1.3142
What’s up on the Forex Dance Floor: The pair is on an overall downtrend but is now consolidating below the Ichimoku’s cloud between the levels at 1.2947 and 1.2874. The RSI is below the neutrality area.
Supports and Resistances
1.2947 Pivot Point
GBP/USD 4-hour: Moving up.
Invest Diva likes: Long positions above 1.6236 with targets at 1.6327 and 1.6446 in extension.
If pair goes nuts: Below 1.6236 look for further downside towards 1.6155 and 1.6060.
What’s up on the forex dance floor: The pair is on an overall downtrend below the Ichimoku cloud but rebounding from a key resistance level, towards the 23% Fibonacci level, teasing the upper band of the Bollinger band. The RSI is heading up above the neutrality area.
Supports and resistances:
1.6236 Pivot point
USD/JPY 4-hour: The bias remains bullish.
Invest Diva likes: Long positions above 107 with target at 107.36 and 107.50.
If pair goes nuts: Below 107 look for further downside towards 106.34 and 105.37.
What’s up on the forex dance floor: The pair is on an overall uptrend above the Ichimoku cloud with the RSI teasing the overbought zone. Market sentiment of one of the largest international brokers shows that only 36% of traders are long the pair. We can use this market sentiment index as a contrarian indicator which gives us a further bullish bias.
Supports and resistances:
107 Pivot point
AUD/USD 4-hour: Moving down after breaking below a key resistance level
Invest Diva Likes: Short positions below key resistance at 0.9133 with targets at 0.9061 and 0.9005 in extension
If Pair Goes Nuts: Above 0.9133 look for more upside with 0.9218 and 0.9294 as targets
What’s up on the Forex Dance Floor: Remaining below the Ichimoku cloud, the pair has broken below a key resistance level which could have opened the door for more drops. We could see a brief rebound prior to more drops as the RSI has reached the oversold area.
Supports and Resistances
0.9133 Pivot point