Well fellow traders, just over a couple of weeks till the EU Referendum here in the UK. (You can read my own rantings about the Brexit vote here.)
So I thought I’d do a quick little Sterling update. During my last piece I mentioned that perhaps the markets had already priced in a Remain victory as GBP was strengthening across the board.
So a week or two on what’s happened?
Well we’ve now had two weeks of Polls that both show the Brexit/Leave vote winning. That has been enough to make GBP tumble and also get the politicians backing the Remain vote into a tizzy and start trying to bring out the big guns.
We also had the Cameron vs Farage ‘debate’ last night. Only it wasn’t a debate as they each appeared for 30 minutes on their own. What was all that about? Furthermore did we really learn anything new from that spectacle?
So what are the markets telling us?
Well actually this week the GBP has been all over the place. The GBP strength we saw a few weeks back has dissipated as the polls have shown the Leave vote winning.
What can we read into this?
Well my own view is that this is just the nerves and shakes before the event. Even though I am a confirmed Brexiter I still believe the Remain vote will win. I read that a big punter went and put down £60,000 on the Remain vote at 2/5 (I think that means he’ll win approx. £24,000 if the Remain vote wins.)
Interestingly looking at the recent COT data shows that the Non-Commercials (the large speculators) are still predominantly net-short GBP. I would have expected them to be loading up on long GBP to make the most of any bounce in GBP should the Remain vote win. Is their net-short position telling us something interesting? Or are they just completely wrong? (Its happened before). Alternatively maybe they’re still holding shorts waiting the perfect chance to load up on longs just before the event? Lets see what happens. Any alternate thoughts or insight is welcome.
If you are trading GBP in the run up to the event then please watch your positions like a hawk. I know that people love to talk about how great it is to have ‘volatility’ in the market….but, just like leverage, its only great when it’s on your side! When you’re on the wrong side of volatility then it can be pretty hard hitting and sobering.
In these last two weeks I expect to see lots of volatility within GBP – every time some politician or world figure (for whichever side) comes on the TV and says something there’ll be some sort of reaction. That just opens the flood gates for GBP to shoot all over the place.
Don’t believe me? Well just take a look at the 15 min charts of GBP yesterday:
Officially this is now being putdown to a ‘fat-finger’ mistake by someone. Hmmmmm. Anyway the GBP moved between 150 – 300 pip move in a 15 minute window across all the majors. Now that is volatile. Great if it was on your side. Terrifying if you were on the other side of it!!
SO keep your powder dry and expect a rough ride these next couple of weeks! You’ve been warned.
June 8, 2016 at 4:10 pm
Hey Paul, Thank you for your analysis. Very interesting, as always. Richard Tromans dropped me a line this week about the W4 triangle on the GBPUSD that I discussed at the Traders Forum. IMO, it is still intact on the weekly chart, see attached. The interesting thing is that we haven’t had a weekly close above 1.4620, the 20s and 80s often being significant S/R on that pair, as you know. I am still tentatively confident about a W5 ahead, which, if it plays out, could see GBP at 1.25ish. Of course, there is always the possibility that GBP is primed for a fall whichever the so-called vote goes. I hope that your presentation was enjoyable for you. I have no doubt that it went well. See you, Kevin
June 8, 2016 at 4:41 pm
Hey Kevin, thanks for your input. You are indeed correct that the 20’s and 80’s can be significant S&R levels in FX.
There is indeed a chance that the GBP could drop regardless of the outcome. Question is: would that be a bad thing?
June 8, 2016 at 4:34 pm
Dear Paul,
I have subscribed to your blog recently .
Although i would have many other subjects i’d like to talk about , i have also read about your piece on “Brexit” to the end ! 🙂 I agree with you for the most part , but then saddly it also means that the “Frenchie” i am will no longer be able to come back and work and settle in London ( hopefully be able to buy a flat with my FX gains ahaha ..touchy subject) .. London was and still is “home” to me much more than Paris will ever be and England has been my country for about 15 years on and off.
I loved it there and I am very nostalgic about it.
Anyway , I can’t resist to send you a piece that will most certainly be ” adding fuel to your fire” as we say in French “ajouter de l’ eau à ton moulin”
comic and pathetic 🙂
with my very best regards,
Marlene
The Brexit farce has reached new lows.
If you’re a Brit in Germany and want to vote on the EU referendum, you might have been scuppered by EU regulations
It’s been reported that because the EU have not managed to regulate what size a standard letter should be across Europe, over 100,000 Brits in Germany may not get their voting letters due to the Germans having a different measurement for standard letters.
The vote notices have been sent from the UK in pre-paid envelopes valid under the Internal Business Reply Service (recognised internationally) but because the size is not standard in Germany many have been held up for additional postage charges.
The Guardian writes that;
“Some post offices in Germany have informed British citizens that they could not accept the A5 envelopes sent out on the IBRS scheme since they did not comply with the German definition of a standard letter, namely no larger than 90x140mm in size and weighing no more than 50g. Royal Mail, by contrast, classifies A5 envelopes as standard letters.”
And that’s not all. According to other reports, there are many EU citizens who have been sent polling cards, even though they are ineligible to vote. This has included Poles and a Swede with a German passport who actually went on to vote.
June 8, 2016 at 4:47 pm
Hello Marlene, thank you for following my blog and adding you’re own thoughts.
Sadly, despite my views the truth is that the Remain crowd will probably win.
Let me also be very clear that even though I’m voting out that doesn’t mean I’m pulling up the draw-bridge to new immigrants and looking to throw the old ones out! Quite the opposite: I have no problem with someone getting off their arse and going to make a better life for themselves and their family elsewhere, so long as it is done through hard-work and endeavour. Economic migration is as old as we are as a species. EVen if a Brexit occurs I believe people from all over will still be welcomed here in the UK. I believe London truly is the premier international City of the world – I cant see that changing.
That’s a truly comic and pathetic piece you post…….and just about sums up the EU wonderfully.
Paul