US Dollar Forecasted to Advance Over British Pound and Euro in Near- to Medim-Term

The outlook for the Euro is meanwhile shaky and it is the US dollar that is expected to maintain its advantage.

For reference, at the time of writing (11/09) the following rates are seen:

• 1 GBP to EUR: The conversion exchange rate for the pound to euro is  0.11 pct up at 1.2568.
• 1 GBP to USD: The conversion exchange rate for the pound to dollar is 0.09 pct higher at 1.6225.
• 1 EUR to USD: The conversion exchange rate for the euro to dollar is 0.03 pct lower at 1.2913.

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Pound to US Dollar Forecast: How Low Can GBP/USD Go?

Nomura tell us the sterling dollar could fall by quite a substantial amount owing to a tightening in the Scottish independence contest:

"We see a clear potential for a much tighter race than previously thought, this is a pattern that is being captured by the various polls that will weigh on GBP in the coming weeks.

"That said, we view it is likely a further narrowing of the lead for the “No” vote in the polls could occur. With one of the important findings from You-Gov was that that the “don’t knows” are statistically more likely to be swayed for the pro-independence lobby in the run up to the referendum.

"However, when it comes to the final result at the ballot, research suggests that voters tend to be more inclined to vote in referenda for the status quo or “the devil they know” than polls suggest which only strengthens our conviction that the result will be a resolute No vote.

"Short GBP/USD up until the referendum (as poll momentum should see GBP suffer), reduce your position the day before the vote and enter fresh longs before polling booths open in anticipation of a NO vote. Where potentially owning out the money GBP/USD put options as a hedge for the result makes sense to us as well in a worst case scenario as a YES vote could see a 5-10% swing in GBP in the days following," Nomura advises."

SEB Group take a more technical approach:

"GBP/USD Will probably try to fill the gap. The break of the 233d ma band (as repeatedly has been the case during the past years) has sent the pair spiraling lower and there is now to be seen whether the former triangle ceiling, now acting support, can cushion the decline. We are also relatively late in the current downward cycle so the weekend gap should probably be labelled a common gap and as such be filled (breakaway gaps normally occurs early in a move and don’t get filled) to 1.6332."

Euro to Dollar Forecast: Still Further to Fall

SEB Group say the following regarding the euro dollar:

"At least one more step lower. Friday was spent digesting the post ECB slump and as long as holding below the mid body point of Thursday’s falling benchmark candle, 1.3047, at least one more should be sought fulfilling the ideal target for wave 3, 1.2905.

"Thereafter a 1.3047 bounce should be in the cards. On a longer term horizon a wave pattern starting 1-2-3 of course is utterly bearish and speaks of losses beyond the 2012 low point, 1.2042."

Deutsche Bank say:

"With EUR/USD recording the largest range since July 2013 yesterday. Perhaps the hype should be tempered by the fact that Draghi committed to significantly less than EUR 1trn. of balance sheet expansion (according to the early 2012 level he wanted to ‘steer’ the balance sheet to), difficulties in implementing purchases with a limited number of eligible securities, an evidently high bar to public QE and the fact that the zero bound has been definitively reached on rates," DB clarifies.

"However, as a structural call, DB sticks to its view for selling EUR/USD bounces targeting 1.25 by the end of the year."

Pound Sterling to Euro Exchange rate: EUR/GBP is Still Overvalued

The pound to euro exchange rate (GBP to EUR) is likely to follow similar patterns to the GBP/USD - in essence most sterling pairs will be driven by the GBP element of the equation.

When we consider the potential for disruption that a Yes vote poses it is not hard to understand why.

Regarding the euro pound forecast Sean Lee at Forextell says:

"I also do not like uncertainty, just like most traders, and a Scottisk vote to leave the UK would certainly introduce a huge level of uncertainty into the value of the GBP on FX markets. We have 10 days to go before the vote and we are likely to see some large swings dependent on poll results.

"I’m siding with the high street bookies, who are still firmly of the opinion that the end result will see Scotland remaining in the UK and the bookies usually get it right.

"So, EUR/GBP is fundamentally bearish and overvalued in my view, so I expect this pair to fall heavily later in the year once the result of the referendum is confirmed. Until that point, I will sell any significant rallies but I’m also willing to buy short-term dips as the GBP longs in the market will be nervous. In other words, a great pair to be trading."