Two topmost agenda worldwide this week are the Fed FOMC Meeting and referendum on Scottish independence. Editorial today will detail the role of the two events in the forex market fundamental, particularly for the GBPUSD.

Two topmost agenda worldwide this week are the Fed FOMC Meeting that has just ended a few hours ago and referendum on Scottish independence that will be held today (18/9). Editorial today will detail the role of the two events in the forex market fundamental, particularly for the GBPUSD.

GBPUSD

Fed FOMC: QE Ends Next Month, Fed Rate Hike Follows

US the Fed FOMC Meeting remained on course, trims bond-buying program by another 10billion USD and signalled that it will end the program in October as expected. Also, CNBC pointed out that the Fed FOMC did not remove language that said interest rates would rise a considerable time after the monthly bond-buying program ended. As always, its chief, Janet Yellen insisted Fed rate hike will depend on data. She said, I know 'considerable time' sounds like it's a calendar assessment, but it is highly conditional and linked to the committee's assessment of the economy.

However, the Fed changed their economic estimates by small margin. US GDP is expected to rise 2.6%-3.0% in 2015 and 2.6%-2.9% in 2016. Its unemployment rate is hoped to improve to the range of 5.4%-5.6% in 2015 and 5.1%-5.4% in 2016. Its Summary of Economic Projections also estimates that interest rates will be at 3.75% at the end of 2017, while GDP will grow 2.3%-2.5% and inflation will rise by 1.9-2.0% in the same period.

So, is the Fed being more hawkish or dovish? It is hard to read any sentiment either way from the latest Fed FOMC Meeting. It has left 15billion USD to be cut next month and not-so-surprising economic estimates. The commitee is still unsatisfied with US job market condition and remains unfazed in using broad-based data as determinant of rate hike. Rationally, it sounds dovish compared to how some hawkish members of the FOMC wants the Fed to hike rate sooner, but the US Dollar speed forward following the news in spite of it. EURUSD skydived to 1.2837, while USDJPY soared to 108.59 until it was stopped by the release of better-than-expected Japan trade balance data.

Overall, it seems that there is a significant gap between the Fed intention and what the market expects from them. The Fed will move on its own pace, while the market insist on speculating based on the premise that as long as statistics show improvement, then rate hike will come sooner. The circumstances has led stock market climb higher and sent forex market to a wild ride. At this point, to say that the USD is one of the safe haven is a bit overrated, because risks on holding on to the USD and US-based assets surely gets higher along with the ballooning expectations. At a stretched market like this, even the slightest hint of trouble could crumble the entire building.

 

GBPUSD Hinge On Scottish Independence Referendum

One of the pairs that managed to survive better than Euro and the Yen against the USD is Poundsterling. The currency is currently fighting against pressures ignited by the Scottish Independence referendum. Surveys showed tight competition between the Yes and No campaign, which means that the I Don't Know camp will determine whether UK will stay the same or be the United Kingdom of England, Wales, and Northern Ireland.

Considering the high degree of uncertainty conveyed by an independent Scotland, many analyst are wishing that good sense will prevail and most Scots decided against secession. However, Scotland is yet to come to a resolution. Under such precarious condition, however, the UK job market presents surprising improvement.

UKUK Unemployment Data 2008-2014

Yesterday, UK Office of National Statistics (ONS) reported that the number of Claimant Count Change dropped -37.2k and unemployment rate fell from 6.4% to 6.3% last month. UK unemployment is now at the lowest level since 2009. More importantly, wage grew 0,7% in the second quarter of 2014. The news spin a better sentiment for the GBPUSD because the Bank of England concerns for UK Job Market was obstructing expectations on sooner rate hike. As the result, despite on the same day BOE decided to keep rate unchanged, GBPUSD is supported.

Anyhow, the market is now traded near EMA-100 in a largely undecided market. Subsequent significant move will depend heavily on the result of Scottish independence referendum. On the H4 timeframe chart, GBPUSD now lies near fibonacci level of 23.6, and the likeliness of it to move upward and downward is equally divided.

GBPUSDGBPUSD In H1 With EMA-20, EMA-60, EMA-100, Fibonacci Retracement and MACD

GBPUSD on the H1 timeframe, a perfect EMA-20, EMA-60, and EMA-100 crossover occured on September 16th around 1.6255. Therefore, it could be the determining treshold. If price penetrates that point downward, then GBPUSD will likely continue its bearish move further. Last week, the pair tumbled on the news that most Scots in a survey chose to separate from the UK. In an echo of that event, we might see GBPUSD lose substantially if Scotland independence Yes camp wins. On the other hand, a win for the No campaign in Scottish independence referendum could drive GBPUSD upward, back to 1.64 and beyond. However, the pound gains could be limited due to  underlying gap between UK and US interest rate outlook.

Other fundamental economic publication left this week including UK retail sales, US building permits, US Jobless Claims, Yellen speech, and Fed Philly Manufacturing Index. On the likelihood that Scotland will say No to independence, market overrated expectation for sooner Fed rate hike will prevail and limit GBPUSD upward moves.