September Market Update (Week 2)

The biggest news item to move the market came over the weekend with the pound sliding to its weakest level since November versus the dollar this week as opinion polls highlighted the risk Scotland will vote for independence next week, potentially splintering the U.K.’s 307-year-old union. Britain’s currency dropped the most in more than a year against its U.S. counterpart and measures of price swings surged after a poll by YouGov Plc showed the Scottish independence campaign gained a lead for the first time this year.

Sterling did recover a little later on in the week after a Survation poll on Wednesday signalled a surge in support for Scottish nationalists had faltered.

5 Best Trades this week

  1. AUDUSD (Daily Chart) – Breakout of Support Short – 09.09.2014 – This pair had been in a wonderful range since March. Key resistance could be found at around 0.9450 and key support at 0.9210. Here we could trade within the range so long as price respected the levels or we could trade the breakout if it didn’t. This week we witnessed the eventual breakout to the downside with support being broken and closed beneath on Tuesday. An aggressive entry just below the support level and a tight stop just above would have kept the pip risk minimal allowing for a decent reward to risk. Currently in profit to the tune of +3.5% with stops locking in profit and the trade left to run.
  2. AUDCAD (Daily Chart) – Triple Top Power Pivot Short – 09.09.2014 – The 1.0230 level of horizontal resistance was providing fantastic clarity on where to trade short from. The level, combined with the stochastic divergence and inside seller reversal bar, provided ample evidence for a high probability trade. Taking an entry short on the break of the low of the reversal bar, and a protective stop just above resistance, provided an efficient entry and allowed a decent return of +1.8% taken back at the next major level of support around parity.
  3. EURUSD (5 Min Chart) – Pivot Trade Short – 08.09.2014 – After the monumental fall last week off the back of the negative rate news, EURUSD was no longer a great option to trade on the daily timeframe however, with the negative sentiment still flowing through the weekend, there was a great opportunity on Monday to grab a quick +1.11% from trading off the pivot point resistance.
  4. EURAUD (Daily Chart) – Power Pivot Trade Long – 09.09.2014 – Following on with the AUD weakness across the board, the EURAUD presented a very technically sound opportunity this week. Price had fallen to the bottom of its downward channel on the daily chart. Here, this also coincided with a horizontal level of major, multi-year support. What was conclusive, and important to suggest a reversal was imminent, was the stochastic divergence and major fib overextension. All the technical factors came together to make for a powerful team for trading. Waiting for price to give a signal is essential, and this came on Monday with a powerful buyer bar, indicating bulls were taking positions. Taking a break of the high of the reversal bar, with a stop under the swing low / horizontal kept the reward to risk ratio efficient, taking a +2% back up towards the top of the channel.
  5. GBPJPY (Daily Chart) – Power Pivot Trade Long – 10.09.2014 – A significant and clear horizontal level of support had formed on the daily chart since April. The GBP weakness at the start of the week pulled price down into the level, where price responded as you would expect for a reversal / bounce – it had clear divergence, a clear fib extension, a clear price reversal bar (inside buyer bar). Armed with this technical information, a power pivot strategy could be applied to the price action which formed on the level. Taking an entry on the break of the reversal bars high, a stop below, allowed for a +1.12% profit taking this at major resistance around 173.30.

EFFECT OF THE NEWS LOOKING FORWARD

There is likely to be some extreme volatility surrounding Pound Sterling as we get ever closer to the final result on September the 18th. With more polls due to announce their pre result readings, the market is likely to get more twitchy, especially the closer the figures are to a ‘YES’ vote for Scottish independence.

The implications of a ‘YES’ vote have been discussed in depth but there seems no clear view purely because what we are seeing is so unprecedented. This would create great uncertainty, essentially meaning that the market would be unsure on how to act. Uncertainty in the markets is never ideal to trade through as moves become more unpredictable and volatile and therefore it would be best to stay away from GBP and GBP pairs until the vote has concluded and more clarity is given on the implications of the independence.

If however, the vote comes out as a ‘NO’ to independence, we should see the GBP strengthen across the board (unless the result is so close that there is a re-vote) because the UK economy is strong right now and getting stronger. The fear would be removed and market participants will again feel the certainty and confidence to buy the pound again. Here, we could look to trade the pound strength against the weaker currencies using our technical strategies.