Exclusive: Scotland Referendum Trading Strategies

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*Live updates will be posted at the bottom of this page

Scotland Referendum Time Table

18/09/14: 06:00am GMT – The referendum voting begins
(polls open)
18/09/14: 21:00 GMT –        Voting closes
19/09/14: 01:00am GMT – Early returns announcement
19/09/14: 06:00am GMT – Final results are announced

Scotland Referendum Polls Time Table

18/09/14:  *N/A – Ipsos-Mori Poll

*Thursday afternoon, time unknown.

Latest Poll Results

YouGov, released today at 21:05 GMT: NO 52% | YES 48%

Scotland Referendum 2014 Predictions

The Scotland referendum for Independence will be remembered for years to come, history in the making. All polls suggest the NO and YES camp are literally neck-to-neck with a slight lead to the NO camp (51% according to the latest poll).  Scotland becoming independent will ripple through global markets, knocking out the UK bulls to sooth their bleeding positions. We would like to highlight DBRS credit rating agency views on the current uncertainty evolving around Scotland referendum. If Scotland votes NO for independence with a minor lead (51% for example) there is a strong possibility for a second referendum and destabilize long-term investments in Scotland (TSB is heavily exposed to Scotland). If Scotland votes YES for independence, 18 months of negotiations are likely to take place.  Scotland would need to negotiate its EU membership, how to divide the North Sea crude oil, have its own currency, deal with the UK nuclear submarines base in Faslane and whether UK and Scottish firms would relocate to London. Bear in mind there are Scottish MP’s in the UK government. Only a decisive NO vote in Thursday’s referendum would sooth global markets. If you have been following the latest polls from Scotland there is only a minor majority for the NO camp. The undecided votes, estimated to be 14% will seal the fate of the United Kingdom.

In terms of the market, the Fed recently reduced its Quantitative Easing (QE) by $10 billion and affirmed a QE exit will be made in October’s meeting.  Despite maintaining that rates will remain low for ‘considerable time’ had a minor effect on USD pairs and crosses in the Forex market. Although GBPUSD is taking a bearish beating with EURUSD, GBP pairs and crosses such as GBPJPY and GBPAUD are posting marginal gains at the time of this writing. In light of DBRS outlook and recent polls it appears that GBP is likely to suffer unless a decisive NO vote will be made, which is not predicted by the latest polls. We therefore search for trading opportunities to short GBP in the FX markets given that we have a technical entry.

Scotland Referendum Trading Strategies

As our trading strategy is based on reversals, recent gains in GBP provided us with decent entries, especially in the FX crosses. Our first pair is EURGBP.  There are two fundamental factors for this pair before our technical strategy. The Scotland referendum and the European Central Bank (ECB) Targeted Long-Term Refinancing Operation (TLTRO) first allotment that will be conducted tomorrow. Bids will begin tomorrow morning and the data are scheduled to be published at 09:15am GMT.

The ECB is offering up to EUR 400 billion for the banks. At 09:15am GMT we will know how much capital was given. The higher the amount, the heavier the selling pressure will be on EUR pairs and crosses. A relatively low amount will have the reversed effect and boost the Euro against a basket of currencies in the Forex market. Our outlook for the TLRO on Thursday will be EUR 95 billion, a considerably low amount. From a fundamental angle there may be an entry in EURSD tomorrow morning ahead of the TLTRO results at 09:15am GMT but we do not have an entry at the time of this writing. In EURGBP, we are choosing to take a long trade based on the monthly chart. Our goal is to be in a decent profit ahead of the Scotland referendum results.

EURGBP Monthly Chart

Please click on the chart to enlarge:

EURGBP Technical Analysis

EURGBP Monthly Chart 17/09/14

We have noticed the inverted hammer that led to moderate gains before the FOMC statement. The recent dip allows us to execute a long trade at relatively low price and a fair protective stop loss order. Strong support is also found at 0.7851 while our target would be a retracement towards the 100 Moving Average (MA, in blue).  The long trade is executed at market price, targeting 0.8110, protective stop loss is layered at  0.7840. The Risk Ratio (RR) is approximately 1 : 3.

EURGBP current price:  0.7902

GBPAUD Trading Analysis

Our next technical strategy would in GBPAUD. Recent gains on the weekly chart are part of medium-term weakness that is expected for the FX cross since the top Head-And-Shoulders (H&S) was affirmed. The entry is not as smooth s EURGBP as it could still rise towards 1.8217 before retracing lower. By the book, the losses are expected to drive GBPAUD below 1.7271 but we are setting our take profit at a higher price and will attempt to re-join the bearish downtrend via intraday entries.

GBPAUD Weekly Chart

Please click on the chart to enlarge:

GBPAUD Technical Analysis

GBPAUD Weekly Chart 17/09/14

The protective stop loss must be placed above 1.8217. We are choosing 1.8300 to be our protective stop loss order for the short trade, targeting 1.7644. The RR for GBPAUD short trade is approximately 1 :3.

GBPAUD current price: 1.8162

We will post live updates at the bottom of this page, covering the latest from the Thursday’s referendum for independence. Updates will be made throughout Thursday night to Friday morning until the final votes are published. You can bookmark (CTRL + D) this page or subscribe to DDMarkets.com to be instantly notified when an update is released. You may also wish to review our European banks stress test predictions.

18/09/14, 12:58 GMT UPDATE: The MORI poll shows the NO camp is in the lead with 53% while the YES camp is holding at 47%. Moderate gains were noted in GBP pairs and crosses, out GBPAUD short trade was stopped out. We are considering a re-entry. Our EURGBP long trade is in still in the market.

18/09/14 UPDATE, 13:09 GMT UPDATE: This is one of our toughest decisions.  We have decided to re-enter short GBP trades in GBPJPY and GBPCHF. We have increased our market exposure to GBP but we believe the bullish reaction to the MORI poll will be short-lived.

GBPJPY short @ market price (178.04),  targeting 173.90, protective stop layered at 179.60.

GBPCHF short @ market price (1.5340), targeting 1.4916, protective stop loss layered at 1.5435.

18/09/14 UPDATE, 13:21 GMT UPDATE: We will be constantly updating this page. All DDMarkets subscribers were notified of the new trades.

18/09/14 UPDATE, 13:54 GMT: The protective stop loss orders and targets for GBPJPY and GBPCHF are based on the weekly/monthly charts.

18/09/14 UPDATE, 14:11 GMT: The fundamental trigger for GBP weakness ahead of the results is profit realization by FX traders.

18/09/14 UPDATE, 14:31 GMT: More details on the Scotland referendum. Anyone over the age of 16 is legible to vote. Results will start flowing from 7 councils starting at 01:00am GMT. Moray, Inverclyde, Orkney Islands,  Perth,  Kinkross, Western Isles, East Lothian and North Lanarkshire. Aberdeen will be the last, results are due at 05:00am GMT.

18/09/14 UPDATE, 17:40 GMT: Many are unaware that the postal ballots, those that cast their vote via mail are not accounted for in all the published polls, leaving room for a major surprise.

18/09/14 UPDATE, 21:08 GMT: Voting is over. Although there are not exit polls, YouGov confirmed a final prediction poll will be published at approximately 21:30 GMT.

18/09/14 UPDATE, 21:31 GMT  : YouGov final prediction poll shows: 46% NO | 54% YES. GBP spikes on the news.

18/09/14 UPDATE, 21:45 GMT: We are maintaining our bearish outlook and expect recent gains to retrace during the Asian session. The poll is insignificant as the same people were asked again for what they have voted. What will indeed negate our outlook is when the count begins at 01:00am GMT.

19/09/14 UPDATE, 00:35 GMT:  Clakmannashire results are out. 54% NO, 46% YES. GBP strengthens as a result.

19/09/14 UPDATE, 00:51 GMT: We were stopped out on EURGBP and GBPJPY short trades. GBPCHF short trade is still in the market where the next result will determine its outcome.

19/09/14 UPDATE, 01:08am GMT: We are continuing to update this page despite the fact we were stopped out.  Results came from Orkney, 67.2% voted NO.

19/09/14 UPDATE. 01:49am GMT: Shetland votes NO with a majority of 63.7%.

We will continue updating this page through the night until the final votes are published.

Exclusive: Scotland Referendum Trading Strategies
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Exclusive: Scotland Referendum Trading Strategies

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Exclusive: Scotland Referendum Trading Strategies

Last Updated on August 9, 2015