Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 19 September 2014 at 7:51 GMT

FX Update: Scots vote No, but is GBPUSD still a Yes?

Head of FX Strategy / Saxo Bank
  • GBP rallies on Scottish No vote
  • EURCHF could test 1.2000 floor
  • Norges Bank goes relatively hawkish

By John J Hardy

Scotland votes No (yawn…) 

The Scotland independence referendum has seen a clear victory for the No vote, with about a 55/45 split this morning with virtually all votes counted. Sterling has seen the expected relief rally on the development, though it’s been of a fairly modest magnitude as it was rather evident that the market was already leaning heavily in anticipation of a No vote in the final pre-vote sessions. 

Hadrian's Wall
There will be no checkpoints at Hadrian's Wall. Photo: iStock

From this point, any further GBP strength will not be about the referendum but rather about UK fundamentals and anticipation of Bank of England policy. If EU growth worries continue to tilt lower, I suspect there will be an eventual contagion across the channel into the UK. For now, let’s focus on whether these new, sub-0.7875 lows in EURGBP hold.


GBPUSD has pulled sharply higher on the result and challenged the technical important 1.6500-plus area (which is near a key previous low). Skeptics of upside potential may look to fade the move in this area which, if it fails to hold, could open up for a full test of the 200-day moving average.


Source: Saxo Bank

Swiss National Bank

The SNB was far less bold than I expected yesterday, only lowering inflation forecasts and fretting risks to growth from the external environment. Those factors are certainly worth noting, as the SNB will act first and foremost in the interest of domestic economic considerations and a stronger currency will not help. 

Negative rates were not specifically mentioned, with the bank only making its usual rhetorical insistence that the franc's upper limits would be defended. This could mean that we see pressure on the 1.2000 EURCHF floor for a time before the SNB finally folds and enacts something punitive on large sight deposits to avoid having to print fresh tens of billions of francs to defend the floor.

Norges Bank

Ahead of yesterday’s Norges Bank meeting, EURNOK had backed all the way up to 8.30-plus as the market had grown incredibly wary of Norges Bank’s potential to surprise after the zigs and zags at its most recent few meetings. There was fear of dovishness in the air as many perhaps thought the bank would wax dovish due to weaker oil prices and the risks these represent to oil sector investment. 

Norges Bank
It was the hawks that ruled Norwegian skies at yesterday's central bank meeting. Photo: iStock

Instead, Norges Bank came out with a very sanguine forecast for the economy with no anticipation of further rate cuts — very hawkish relative to fears and relative to what has unfolded. I suspect that lower oil prices and a weaker EU economy could see another zig or zag from the Norges Bank in the not too distant future, but for now the path appears clear toward the bottom of the range (down toward 8.10/8.08).

JPY weakness

Elsewhere, USDJPY ripped higher still on a further jump in risk appetite as US equities closed at a new all-time high. Higher future Fed Funds anticipation (modest but towards recent extremes) is also a factor, as is the 10-year yield pulling higher still and challenging above the 200-day moving average. The rally will likely only find resistance when these factors are less supportive of JPY weakness. Trend followers may also have been piling into GBPJPY over the last couple of sessions, adding to the move. Even EURJPY has taken out the critical 140.00 area.

Looking ahead

Technically speaking, we need to resolve a few things today.

  • Whether the highs are in for GBPUSD in the post referendum surge. I vote a cautious yes.

  • Whether EURUSD will stay lower or consolidate a bit higher — this local 1.2932 is a key factor, as is 1.3000. Even if we do revert to consolidation for a time, I suspect it may prove modest, with a ceiling toward 1.3100. If we maintain below 1.2932 plus slippage, the focus remains on the 1.2750 area next. 

  • Can USDJPY close the week on a high note? The JPY charts are getting highly unstable on this latest rocket launch higher and I suspect that once consolidation arrives on the scene, it will be rather sharp and deep (whether from here or not until we reach above 110.00).

  • Whether this USDCAD reversal (bearish) is for real. It looks relatively compelling in terms of the pattern, but I simply do not see the fundamental driver for a move lower. The Canada CPI release today should give us the answer on where we stand (1.0925 and 1.1000 are the initial focus levels for swinging either way.) 

  • AUDUSD resistance clear at 0.9000. Let’s stay below that level if we want to keep the pressure on the downside toward the 0.8660 low. 

Upcoming Economic Calendar Highlights (all times GMT)

  • Canada Aug. CPI (12:30) 

-- Edited by Michael McKenna

John Hardy is head of FX strategy at Saxo Bank


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