Good morning

We have all seen the reports and surveys showing that “apparently” the YES vote has taken the lead in the upcoming referendum to be held on the 18th. If one casts their minds back to 1995 and Quebec, there is most definitely some interesting similarities. In the end sense prevailed and the NO vote won by 50.28% to 49.42%

While it is anyone’s guess as to what will happen, one has to think that the NO vote will prevail on the finish line as people’s voting patterns change once they standing in the booth ready to vote. This is a monumental decision, one which will affect many generations to come. I sincerely hope people are giving this a lot of thought because one only has to look at the Maastricht Treaty of 1992 and see the resulting mess the EU is in now. It is all well and fine to say let’s leave and go it alone, but unless they have all their ducks in a row and the “ability” to do it…well failure is just not an option.

We can sit here and debate this subject for hours. We can write commentary until we are blue in the face, but what we cannot do is predict people’s behaviour and thought process. Looking at it head on you have to think if the YES team wins, Scotland could fact years and years of strain suddenly cut off from all Financial and Legislative assistance.  What we do know and what we have witnessed over the past 48 hours (when the latest YouGov survey showed YES in front) is the blind panic within the GBP market. Already GBP/USD has fallen from 1.6330 (Friday close) to 1.6165, while EUR/GBP has gaped from 0.7950 to 0.8010 with FX volatility skyrocketing in line with these moves. 1m GBP/USD paid as high as 9.35 (it was trading at 5.15 1 WEEK AGO). The point is the market is spooked and looking for insurance to cover any fall out from a YES vote. For now exporters (earning in foreign currency) are enjoying a respite after months of GBP strength. In my opinion if you are looking to buy GBP, chances are you WILL get a better opportunity. If you are however on the other side of the coin, needing to sell GBP, I would recommend doing some now and then seeing what happens on the 18th.

If you asked my opinion, I believe and think the NO team will prevail and GBP will make a rebound, one of which we have not seen since 2008. Perhaps the NO team should have enlisted someone BETTER than Alistair Darling  to run the campaign. One just has to look back at his time in Treasury. Time to start talking tough.

On another note,  Friday saw disappointing NFP numbers (+142k, vs +200k expected).  Further disappointments came from a lower participation rate and a slow rise in wages. It gave some currencies a chance to recover against the dollar, but the euro only temporarily bounced.Additionally a breakthrough in Ukraine with peace talks and a cease fire which as we write this is in general still on. There is suspicion on all sides, so new sanctions are still on the cards. The breaking news about a permanent ceasefire came out of Kiev and were followed by a denial from Moscow. Markets will continue to react positively to more of this news.

As far as the USD is concerned, while a bounce of some magnitude is possible, the overall short to medium term synopsis is for the USD to continue to make new highs vs the EUR & JPY especially. Al eyes might be on the Scottish Referendum, but make no mistake traders will take advantage of this to position themselves for a much bigger move which we expect to happen. The only thing that worries me is the speed and ferocity of the move. Remember only 6 weeks ago EUR/USD traded at 1.3750 and GBP/USD at 1.7180 ….

Good luck and go well