Daily Market Recap – GBPUSD Soars as Scottish independence referendum less likely

The British pound advanced more than 1% against major currencies on Monday, boosted by local election results in the U.K. that saw a narrow victory for pro-independence voters in Scotland and an improving health situation in the country.

Forex traders were reacting Monday to the results of Thursday's local elections in the United Kingdom, which saw the Scottish National Party (SNP) emerge victorious in Scotland, falling one seat short of an absolute majority.

The U.K. currency gained 0.75 percent against the dollar to $1.4089, the highest since Feb. 25, and 0.71 percent against the European single currency to 86.37 pence per euro. “Short-term concerns about a second referendum on Scottish independence seem to have dissipated somewhat” after Thursday's election results, said Markets.com analyst Neil Wilson

“The main conclusion of the vote is the decrease of political risks in the United Kingdom,” estimated Ricardo Evangelista, an analyst at ActivTrades.

“The SNP having failed to obtain an absolute majority, this leads most analysts to believe that London will be able to delay a new referendum on Scottish independence,” he added, which reduces the short-term risk of a breakup of the United Kingdom and the negative impact that such an event is likely to have on the value of its currency.

The Scottish Conservatives, who came second with 31 MPs, were also pleased with their leader Douglas Ross for having “blocked a majority for the SNP and an independence referendum”.

Analysts also pointed to the improving health situation across the UK, which is good for the health of the economy and the British currency. The U.K. is expected to announce Monday that it will continue to lift health restrictions, a step that will take effect on May 17.

Since the launch of the vaccination campaign in early December, more than 35 million of the UK's 68 million people have received a first dose of the Covid-19 vaccine.

From a technical perspective, the GBPUSD has convincingly broken above its downward trendline from February highs. The pair managed to breach the 1.40 psychological resistance level with ease and made a test of the 1.14159 level before retreating slightly.

(Chart Source: Tradingview 10.05.2021)

A close above this point will see the GBPUSD trade at a three-year high with the next resistance set at 1.43823. On the flip side, the immediate support should be felt at the 1.40 mark.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.