Today's historic vote in Scotland on independence from the U.K. after 307 years of union promises to be a cliffhanger, given the thin margin of error between the "Yes" camp and the "No" camp. Even if Alex Salmond and the Scottish Nationalists do not succeed in today's vote, they will invariably score a lot of victories including the perks and benefits associated with much greater autonomy. Cameron, Brown, Darling, and putatively the Queen have been championing the "No" coalition - lest their political and post-political careers suddenly evaporate faster than the fog around Edinburgh Castle. Be not mistaken: heads on all sides of the aisle would roll due to internal party maneuverings or eventually at the ballot box should Salmond emerge victorious.
If the "Yes" camp pulls off a stunner today, it will initiate trigger about eighteen months of negotiations between Scottish leaders and the government in London on a variety of issues. One of the most contentious issues is whether Scotland would be able to retain the British pound as its currency. Chancellor of the Exchequer Osborne has been quite forthright in indicating Scotland would not be able to retain the British pound as its unit of currency.
Is anyone dusting off their old Bank of Scotland, Royal Bank of Scotland, and Clydesdale Bank notes yet?
In contrast to Osborne's warning, Salmond has told "Yes" voters that they should call London's bluff, saying the U.K. would lose too many benefits by not permitting an independent Scotland to use the pound.
We've been tracking how this is playing out in the foreign exchange markets over the past few weeks. One thing is abundantly clear: the Scotland vote has pushed sterling to many key levels, even on the cross rates. Let's look at how traders have banked some alpha ahead of the referendum:
This video illustrates these first three trades:
GBP/USD: Traders picked up sterling on the cheap at the 100-week moving average around US$ 1.6082 last week and exited their longs at 1.6319 this week, representing the 38.2% retracement of the 2009 low through the 2014 high.
EUR/GBP: Traders have been shorting the cross in recent weeks right around the psychologically important GBP 0.8000 figure. For those technical analysts playing at home, GBP 0.8004 is the 76.4% retracement of the July 2012 low to the March 2013 high. A major up trendline anchored from July 2012 was a key exit point ahead of GBP 0.7880.
GBP/JPY: Traders who left limits to buy sterling just above the 50-week moving average may have scored some with a 169 handle last week and may have elected some limits around the 177 handle this week - coinciding with a key retracement extension area with a base from the February 2014 low of JPY 163.87.
This video illustrates these next three trades:
GBP/CHF: In recent days, the 50-day moving average on this cross has come in between 1.5149 and 1.5166 and savvy technicians have exited some positions around 1.5323, representing the 76.4% retracement of the July 2014 high through this month's low.
GBP/AUD: Traders who lifted this cross from the A$ 1.7349 and 1.7320 areas over the past couple of weeks realised they were doing so at key retracement levels dating to October 2008 and March 2013. Those same punters likely took some off around 1.8050 and 1.8199 this week.
GBP/NZD: This has actually been one of the most technically-meaningful crosses to trade in the run-up to today's referendum. Some astute sterling bulls picked some up last week with a NZ$ 1.93 handle, coinciding with the 100-week moving average; others entered longs around the 1.9466 area. Long exits were seen around the 1.9788, 1.9834, and 2.0063 levels, representing key retracement areas with some bases from 2013.
We will likely know the outcome of the referendum within a few hours. Even if the Scottish nationalists do not succeed this time around, London will likely capitulate with lagniappes unforeseen in recent years. Today's "Scoxit" vote also has major implications for the EUR/GBP cross, where the "Brexit" trade should gain in importance if Cameron and the "No" camp successfully manage today's events north of the Borders area. Furthermore, regardless of today's outcome, additional votes on secession are expected around Europe, and perhaps elsewhere.
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