Although most Brexit proponents figured that the last remaining hurdle to triggering EU exit negotiations would be the House of Lords, a new threat has emerged that could delay UK Prime Minister Theresa May’s plans.  There are reports emerging that the leadership of Scotland is contemplating holding another referendum to remain a part of the United Kingdom, potentially damaging the Government’s goal of a smoother negotiation path with the European Union next month. Should Scotland be able to hold a referendum and decide to leave the UK, it could throw the EU exit plans into tumult.

Besides triggering a constitutional crisis, a Scottish exit could also pave the way for the country to independently negotiate with the European Union for membership, although even this type of strategy has complications associated with such a move. As a result of the more uncertain path forward, the Pound has already reacted negatively, with GBPUSD falling towards just shy of 1.2400 considering the Scottish independence move could reduce some of the UK’s leverage during negotiations.  Should a referendum be held, it could prove disastrous for the Pound, sinking it back towards the lows reached last fall.

A New Wrinkle Faces the UK Exit

The UK is facing an uphill battle with the date for triggering Article 50 rapidly on the approach. Increasingly onerous demands from the European Parliament and constituent nations insisting that the UK honor its existing financial commitments, combined with necessary approval from the House of Lords are still hurdles that need to be cleared. Now however, the possibility of Scotland holding a referendum on UK membership may further complicate the status of negotiations. The last time that Scotland held a referendum on membership back in 2014, the Scots voted by 55.00% to 45.0 0% to remain a part of the UK.

However, tunes have changed, and Scots are now showing renewed interest in independence following the decision by the government to seek a “hard brexit” that would see the UK lose access to the single market mechanism. Scotland, for all its efforts, is on the receiving end of mixed messages from the European leadership. While some European officials say it should not be an issue to admit the country of Scotland to the Union, others have taken a less conciliatory tone and insist on arduous conditions for any future member. Although the Scottish National Party has made no such formal moves yet, if a referendum is called, May could try and postpone such efforts until after triggering Article 50.

Nevertheless, any such move by the Scots could trigger a constitutional crisis, sinking the UK Pound even further following the losses at the weekly reopening. Taking into account the last Scottish referendum, the run up to the event caused the Pound to fall as the possibility of the Scots leaving the UK became more realistic. Although failing to ratify a secession vote was greeted positively by the GBPUSD pair after the votes were tallied, a similar type of trend may emerge if any Scottish referendum is called over the coming days and weeks. Furthermore, a vote to leave the UK may also weigh heavily on UK Sterling, sinking the currency at a time when the outlook is highly unclear.

Referendum Whispers Sending Pound Plunging

Since the referendum report was published, the Pound has been sinking versus the US dollar, falling as much as 70 pips at the open of weekly trade before recovering modestly back above the 1.2400 level. At present, the general trend is lower after GBPUSD mounted a recovery at the outset of the year.  However, the result has been the emergence of a potential downward trending channel or possible bullish flag pattern.  For the channel, ideal positions taken at the upper channel line should be targeting the lower channel line for an exit.

In the case of a bullish flag, any move to the upside that exits from the flag could be considered a bullish signal that results in added volume and directional momentum higher. Furthermore, it would suggest a continuation of the more near-term upward trend begun in January especially if the February highs in the currency pair are taken out on the upside. In the meantime, the 50-day moving average is acting as support, standing up against a slide earlier on Monday’s session. Besides resistance at 1.2715 on the upside, the 200-day moving average is acting as resistance, currently coinciding with 1.2900.

What Binary Options Traders Should Watch For

The GBPUSD pair is currently at a very interesting crossroads when it comes to the outlook. Therefore, it is likely that a fundamental catalyst such as triggering Article 50 or the announcement of a new Scottish referendum could have a dramatic impact on the direction. While a hard Brexit is largely priced-in, both of these events could prove negative for GBPUSD. Furthermore, upcoming GDP figures from the United States along with the announcement of the Federal Reserve’s preferred PCE inflation measure could sway speculation on the prospect of further policy normalization, fueling upside in the dollar. As a result, the GBPUSD limbo is set to remain over the coming weeks as the events come to a head, likely sinking confidence in the Pound even further.