Daily Report: Cable spikes as support for Scottish Independence wavers

The Cable spiked during Thursday’s trading from a daily low 1.6185 to as high as 1.6269, following the latest YouGov poll revealing that “NO” votes had gained dominance one week away from the Scottish referendum. The GBPUSD pair concluded trading yesterday at 1.6253.

Cable strength was also supported by Bank of England (BoE) Governor Carney’s perfectly timed comments that an interest rate hike from the BoE is likely around Spring 2015, an announcement that prevented the Cable from extending below 1.6050 on Tuesday. A combination of the BoE indicating a timeframe for a potential interest rate hike, alongside “NO” votes gaining dominance ahead of the upcoming Scottish referendum have encouraged the Cable to recover 200 of the sudden 600 pip losses encountered since last Tuesday.

The latest UK Construction Output data for July is released today but with the Scotland referendum happening next Thursday, this news is likely to have a muted response. Any indications of the “YES” party regrouping and potentially picking up momentum over the weekend would likely prevent the GBPUSD from moving towards 1.63. Possible support levels for the pair can be found located at 1.6230 and 1.6209.

Elsewhere, the EURUSD traded narrowly on Thursday with Mario Draghi’s speech in Milan failing to inspire the volatility that investors were hoping for. The pair concluded trading at 1.2924, only 10 pips above Thursday’s opening price. Economic indicators from the EU are low in quantity today, with the pair seemingly more likely to fluctuate in accordance to how the markets react to the US Advance Retail Sales and University of Michigan Confidence data.

The current forecast for Advance Retail Sales is 0.6% and although the Federal Reserve appear to be currently focusing strictly on the labor markets when discussing monetary policy, consumer expenditure still relates to around 70% of the US economy and so this is an important indicator of economic health. Following the impressive news a fortnight ago that the US Manufacturing sector was expanding at a pace not seen since March 2011, investors will be looking for more signs of economic momentum for Q3.

In line with what was forecast, the USDJPY fell just short of progressing fully above the 107.380 resistance level on the weekly timeframe. The pair moved as high as 107.391 before falling as low as 106.961. An overnight speech from Bank of Japan Governor Kuroda indicated that although they are prepared to act if the economy needs assistance, there are no plans to add stimulus at present.

These hints from Kuroda seemed to have prevented investors from pricing in JPY weakness for the time being. As long as this afternoon’s US Advance Retail Sales doesn’t raise expectations that the Fed will raise rates sooner than expected, the pair’s buying pressure should cool down.

The combination of the US Federal Reserve tapering quantitative easing (QE) further next Wednesday and announcing a conclusion to QE in October, as well as rising expectations of future JPY stimulus should provide enough momentum for this upside rally to resume later next week.