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Scottish independence referendum fears weighs on Pound

A decline in new home sales and core durable goods orders on a month-over-month basis in January weakened the US dollar against the major currencies such as the Pound. The unexpected increase in the Confederation of British Industry’s Industrial (CBI) Trends Survey reading also aided the Cable to strengthen against the Greenback.

However, considering the political and economic issues faced by the UK, we anticipate the GBP/USD pair to decline from the current level of 1.2380.

According to “The Times”, the senior government officials in the UK have expressed their concern that Nicola Ferguson Sturgeon, the current first minister of Scotland and the leader of the Scottish National Party, will call for a second referendum on independence at the start of the Brexit process.

Johnny Bo Jakobsen, the strategist at Nordea Markets, stated that a demand for a referendum could be accepted, but conducted only after the UK leaves the EU. According to Ipek Ozkardeskaya at London Capital Group, a demand for a referendum would further weaken the Pound.


The retailers in the UK are also concerned about the rising inflation, which is eating into their profits. For the first time in nearly four-and- a-half years, the retailers anticipate the business climate to deteriorate in the next three months.

Finally, it can be remembered that the EU is demanding the UK’s exit from the EU before negotiating any trade deal. The divorce-first policy is expected to keep the Pound weak as it considerably reduces the time period available for the trade deal related negotiations.

The US dollar, on the contrary, is expected to strengthen on the basis of Trump’s infrastructure spending and tax reform plans to be announced soon. Thus, fundamentally, it is advisable to sell the GBP/USD pair at this point in time.

The price chart illustrates resistance for the GBP/USD pair at 1.2510. The negative reading of the MACD histogram reflects the upper hand of the sellers. On this basis, we can expect the currency pair to decline in the coming days.

GBP/USD Pair: March 2nd 2017

GBP/USD Pair: March 2nd 2017

A short position in the currency pair can be opened near 1.2320 to profit from the forecasted down trend. To control losses, a stop loss order can be placed above 1.2440. The order to book profit can be placed at 1.2120.

With a low or below option, a binary trader can establish a setup similar to the trade recommendation for the currency market. The option should be purchased while the pair trades near 1.2320. Finally, the expiry period should be chosen such that it is seven days away from the date of entry.

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