Good morning

EUR/USD is trading around 1.3140 as I write this, buoyed by a strong German factory orders numbers and waiting tentatively for the big event: the decision by the ECB and the subsequent press conference by Mario Draghi. The questions on everyone’s lips are will we see another cut and what about QE? or worst case scenario do we hear only the same rhetoric.

• What will the ECB do? Since Draghi’s Jackson Hole speech, expectations are sky high for more monetary stimulus to try kick start the EU’s economies. Some expect the ECB to cut rates even further (not our opinion), while others (including ParityFX) expect the ECB to announce far reaching and effective QE measures. The question we must ask is NOW the time to put forward these measures, or is it worth holding off for a couple more months to see how things pan out. The problem with that is are they simply delaying the inevitable and could this add extra pressure to an already critical problem.
• Breaking news o/n was Russia considering a ceasefire. FINALLY President Putin seeing the light.  While the presidents talked, nothing is really changing on the ground.  President Putin laid out a 7 point peace plan, that will be on the table in a meeting between him and Ukrainian president Poroshenko on Friday. Stocks globally reacted positively with this news and it is our sincerest hope that this actually happens and peace comes to the region. The world does NOT need an aggressive Russia. Russia has a golden opportunity to cement its place as a world power and friend. They must not lose this opportunity.
• NFP out of the US tomorrow: expecting around +200,000 would be welcome, anything extra would be a bonus.

So today will be a proper GAME CHANGER. Any QE offer will probably be (initially) EUR positive, however as we all know the old saying BUY THE RUMOUR SELL THE FACT I personally think we will start to see a continuation of the USD rally.

On a slightly different note Japan left rates unchanged (as expected).

And so to Scotland and the referendum on leaving or staying. GBP has been mauled in the markets. Monday opened at 1.6645, today we trading at 1.6450, EURGBP opened Monday at 0.7900 today we trading at 0.7985. 1m GBP/USD vol on Monday opened at 4.85, today we trading around 6.10 …. traders are nervous, Whitehall is nervous, pretty much everyone is nervous. Cast your minds back to October 1995 when Quebec tried the same thing. I remember that time clearly and how the market went berserk trying to buy “vol insurance” against a possible split from Canada. Luckily the vote went to the wire in favour of the NO (50.58 vs 49.42) and the market rebounded handsomely. While I HOPE this happens in Scotland there is nonetheless the feeling of trepidation of the prospect of a YES vote.

A “No” vote should lead to a one-off unwind of any pre-referendum positioning and return realized volatility to its prior low level (sub 5%), while a “Yes” vote will likely lead to a FURTHER sharp sell-off in GBP and create a manifold increase in uncertainty, thus raising both realized and implied volatility. The latter does not bear thinking if I am honest. The fall out from a “Yes” vote will be so far reaching and endless that it will create a period of tremendous volatility in the GBP exchange rate. Importers and Exporters will trade highs and lows, and it for this reason that you should SERIOUSLY consider your options in the lead up to the referendum and make sure you are hedged or at least partly hedged. While we still think the “No” vote will prevail, who knows how voters will react on the day.

Good luck today