The Weekly Update: The Scottish Referednum and New Trades

Digital Derivatives MarketsResearch, Weekly Market Analysis

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The Scottish Referendum and ISDAfix

A shocking turnaround in early polls show 51% will vote ‘YES’ in Scotland referendum on the 18 September for independence, weakening the Sterling (GBP) even further against a basket of currencies. As we clarified last week, a substantial amount of GBP we heavily sold to minimize GBP exposure in case of a ‘YES’ vote. Despite the gap in GBP pairs and crosses, our technical models remain bullish for the Sterling against the Aussie. Of course, our technical analysis is not bulletproof to losses, hence the usage of stop loss orders. However, our experience in global markets taught us not to deviate from our technical models.

Alaska Electrical Pension Fund (AEPF) is to sue 13 majors banks over rigging ISDAfix, a benchmark that is used to price interest rate swaps. Barclays Plc is one of the banks on the list, which may be the fundamental trigger for our bearish outlook for the stock. Although Deutsche bank is on the list well, our protective stop loss order is above the entry and we have already liquidated decent partials from the long trade.

Another interesting event is Greece Prime Minister (PM) Samaras announcing on Saturday tax will be reduced in the next budget without the approval of Troika. If indeed taxes will be lowered in the next budget without Troika’s consent, repercussions are likely to be seen  in global market. There were already talks of Greece requiring additional aid, which we believe may resurface towards the end of 2014.

AUDNZD Technical Analysis

AUDNZD posted moderate gains against the Kiwi since mid-July, rising over +600 pips at the time of this writing. The daily chart produced a technical short signal based on our technical models. The shooting star on the daily chart, oversold technical indicators are sufficient for us to issue a trade in AUDNZD.

AUDNZD Daily Chart

Please click on the chart to enlarge:

AUDNZD Technical Strategy 08/09/14

AUDNZD Daily Chart 08/09/14

 We are layering the protective stop loss order at 1.1340, targeting 1.0561. The Risk Ratio (RR) is 1 : 2 (approx.) for the short trade. As oppose to previous trade alerts, we are setting an entry order to execute our short trade at 1.1281 (current price: 1.1268).

We must highlight the upcoming monetary policy announcement from the Reserve Bank of New Zealand (RBNZ) poses a great risk to our trade. Our optimal scenario is where our protective stop loss order is layered at the entry by Wednesday morning. We are already holding a short trade in AUDCHF, which at the time of this writing is slightly above our entry.

GBPAUD Technical Analysis

As we stated above, we are executing a long trade in GBPAUD at market price, inline with our technical models.

GBPAUD Monthly Chart

Please click on the chart to enlarge:

GBPAUD Technical Strategy, 08/09/14

GBPAUD Monthly Chart, 08/09/14

Although support can also be found on the weekly chart, we believe the 21-Moving Average (MA) will act as the reversal point, opening the door to the market bulls. Our bullish target for the Sterling-Aussie is 1.7730, protective stop loss layered at 1.7079. Please this is a heavy stop loss order as the analysis is made on a monthly/weekly chart. We do not have the luxury of exercising a tight stop, however, the RR compensates for the stop’s size. We expect to remain in the trade until Mid-September. Please note executing a long trade in GBPAUD does incur in a negative swap that will be debited during the rollover.

Key Economic Figure

The key economic event will be outside market news on the upcoming referendum in Scotland on 18 September. The market will react in accordance to the polls. In the economic calendar, the RBNZ monetary policy is the second event, scheduled on 10 September at 21:00 GMT.

Updates regarding the above trades will be made at the bottom of this page. You may subscribe to and be notified when a trade update is released. Please also note our binary options alerts will commence this week.

08/09/14 UPDATE: Great demand for GBP has lifted GBPAUD to 1.7300 at the time of this writing. We are quite surprised by speedy recovery and realize 15% of the long trade at market price, protective stop is shifted to 1.7244.

08/09/14 UPDATE II: GBPAUD is trading at 1.7327 at the time of this writing. We are closing 10% of the trade at market price and shift the protective stop loss order to the entry.

08/09/14 UPDATE III: GBPAUD was stopped at the entry. We were able to liquidate 25% of the trade with a decent profit without incurring rollover swap. We are cancelling our sell limit order in AUDNZD as the price already retraced lower as we expected.

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Last Updated on August 9, 2015