28th June: Post Brexit Vote views Part 1

Hello Traders,

Well that’s been quite an eventful last two weeks in markets hasn’t it?  For those new to trading I’m sure it seemed quite terrifying. For those of us who’ve traded for a while you realise something like this happens every so often – it’s just part of the gig.

So what actually happened? Where was I right and were was I drastically wrong? I was always a Vote Leave (VL) person…….who thought that the VL group would never ever win. The money and power behind Remain would be enough to bring home a Bremain vote.

Yes its true that for 2 weeks early in June, the VL group had their noses ahead – however there was still a significant number of undecided voters (9-13%) who it was felt would come down on the side of Remain. Despite having their noses in front, after the tragic events of 16th June with the murder of Jo Cox MP I sat and watched a flood of money pour into GBP. It seemed a very clear sign that the Remain camp would win. In fact I changed all of my presentations for the final week to state that it would be a Bremain vote and now we were just waiting to see what the margin of victory was in order to determine whether Cameron would stay or go.

You can see below the fantastic move we saw from lows of approx. 1.4050 upto 1.4950-ish over the days from her murder up to the vote. An amazing move that was replicated across all the GBP pairs in one way or another.

Further more the Bookies and Betting Markets had shown a huge swing back towards the Remain camp (despite the polls the betting markets had never really followed through).

The chart above is courtesy of IG markets who had the price at 75/25 towards remain (and it even went as high as 90/10 after the poling booths closed). During last years general election the polls had been massively wrong but the betting markets had been very accurate about the result. As a general rule if you follow the money you predict the future….and it was clear from both the financial markets and the betting markets that Remain was going to win.

On the Tuesday before the event I delivered a presentation in Dublin and was a confident that a Bremain win was in the bag (despite my own personal views). One of the audience told me that Paddy Power were offering great odds on a Remain win with a vote of +55 which I thought was a good punt. And the audience agreed with me.

In the run up to the vote I was delivering presentations all over the UK and Europe and clearly I felt that Bremain would win, and if so the first target would be 1.50, with a possible overshoot to 1.51-1.52 on GBPUSD.

So despite being an Out-er I clearly felt that Bremain was going to be the winning side, and clearly I was wrong in my call. For which I apologise. In my defence the major players were also predicting a Bremain vote: 10 Downing Street, Boris Johnson, Nigel Farage, George Soros, and most financial institutions.

Well I was right that price did hit 1.50……and went no further!  I was on a trading floor on the evening of the results. I sat with my German colleague and watched price shoot-up to the 1.50 area, where price faked-out and printed a nice little head and shoulders pattern on the 5 minute chart. We laughed about how that was a great little sell signal……..but of course price was only going higher so it would be foolish to short there. Sigh. It might be sometime before we see 1.50 again!

Overnight as news came in it was quite clear that a vote of seismic proportions was occurring. And with that GBP fell…and did it fall! From 1.50 down to approx. 1.3226.

Prices have bottomed out (for the time being) and are today holding around 1.33-1.34. There will undoubtedly be further turmoil down the road -but for the moment I am calm.

If you got part of that short then congratulations – I admit I was flat going into the results as I felt (regardless of the result) that it would be far too volatile and spreads would be all over the place, along with fills, executions and stop-losses!

In my defence even George Soros was long Sterling due to his view that Remain would win and Sterling would strengthen. Interestingly as the result became clear and was finally declared we could start to see the shifts within markets as they sold off.

One good call I had made to people was that I had said that if a leave vote was successful then you wanted to be short GBPJPY and GBPCHF and long Gold – all as safe-haven plays.

One other element was shorting European Banks – as they may have felt the most pain from an event like this. And that has worked out true. In particular I talked about Deutsche Bank (NYSE:DB) who have lost 40% this year, are at the lowest since 2000

If you look at any of the Big European Banks they all got slaughtered since Friday morning, which tells us a lot about the underlying problems Europe faces. It may well be that Europe fares just as badly or worse than the UK as part of this divorce?  In part 2 I shall focus on the political points and what are my own feelings about the future.

For those of you still in shock: the world still turns, the sun still rises and sets, and Liverpool will probably never win a Premier League. These are the things you can take comfort and solace in during turbulent times.

Trade well,

Paul