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It’s Yes or No time for Sterling traders - BTMU

FXStreet (Guatemala) - FX Strategists at the Bank of Tokyo Mitsubishi UFJ The outlook for the pound next week will be binary depending on the outcome from the Scottish referendum.

Key Quotes:

"If Scotland votes to remain in the UK, then the pound is likely to stage a relief rally in the week ahead lifting GBP/USD towards resistance from its 200 -day moving average at just below 1.6700."

"The final opinion polls and leading bookmakers in the UK are all signalling that a narrow vote against independence is likely. Whether the final result is in favour of “YES” or “NO” will be more important than the closeness the vote as another referendum is unlikely to be held in the coming years even if the “NO” vote wins by the smallest of margins."

"Alternatively if the opinion polls and bookmakers are all proved wrong and Scotland votes in favour of independence, then the outlook for the pound will deteriorate significantly. The pound could fall sharply in the week ahead by around 5-10% as the combination of capital outflows and downgraded outlook for the UK economy from the heightened uncertainty would weigh on the pound."

"The UK government would likely reiterate that it will continue to honour all outstanding UK debt and the BoE would provide reassurance that it stands ready to preserve financial stability in the UK if required in an attempt to reduce the risk of a bank run in Scotland. The SNP has set a provisional date for independence on the 24th March 2016. As the downside risks are significantly greater if there is a “YES” vote than the upside risks if there is “NO” vote, we believe that it is too risky to advise long GBP/USD positions prior to the referendum despite our base case scenario remaining that Scotland will vote against independence.."

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