What will Brexit / Bremain do to the markets?

19 June 2016, 20:08
1246536 Ernest G.

Content courtesy of Tallinex Limited https://www.tallinex.com

Originally, I planned to post an article titled: “Difficult Markets Produce Fine Results – Part 2.”, but I can see that the media are making noises about the coming Brexit or Bremain - just like they did when the issue of Grexit was hot.

A referendum is being held on Thursday, June 23, 2016, to decide whether Britain should leave or remain in the European Union.

Since the outcome of the referendum will impact the markets, it is worthwhile to know the nature of the impact and how exactly the markets will behave during and following the referendum.

Traders want to know what the market will do - whether it will go up or down, or simply fluctuate wildly without direction.

What will the markets do? I do not know, but I can tell you what the markets are SUPPOSED to do, but that will only be my opinion. However, everyone is entitled to an opinion.

If you recall my Annual Trading Forecasts for 2015, I mentioned that USDCHF would experience a large pullback in January. That is exactly what happened.

What should happen to the markets on June 23 and after
The Brexit / Bremain issues mainly affect GBP pairs - just as the SNB action of January 15, 2015, mainly affected CHF pairs. When I mention major GBP pairs, I mean GBPUSD, GBPJPY, GBPCAD, EURGBP, GBPAUD, GBPNZD and GBPCHF, and these pairs are already trending strongly… but that is their normal behavior. Please check historical data.

Whether Britain chooses to remain in the European Union or leave, there will be strong moves in the markets, but those moves will be stronger if Britain choses to leave the EU. However, the currency markets are like rubber bands: if price moves too far in one direction, it soon snaps back, and accumulation / distribution territories are present to check strong trends.

So… regardless of the referendum result, there will be no unprecedented volatility in the markets.

My recent market forecasts mentioned that GBP pairs would experience strong volatility this month (NZD pairs, too). This is because GBP pairs usually move strongly in June while most other pairs experience low volatility. The Bremain / Brexit issue is simply a catalyst that will spur the usual strong movements of GBP pairs this June.

Remember that the market has a knack for going against popular expectation. Unanticipated events cause surprise moves - anticipated events do not.
No-one expected that the SNB would remove their rate peg on January 15th, 2015… and that unanticipated event caused unprecedented volatility for CHF pairs. Similarly, the unexpected Japanese earthquake in March 2011 (which also resulted in nuclear fallout) caused surprise movements for JPY pairs.

Conversely, the highly-anticipated Grexit was hyped as potentially having a serious impact on the markets, but nothing significant or extraordinary actually happened, as far as the markets were concerned. In fact, far stronger moves occurred in the first and last few months of 2015 than when the Grexit issue was at its peak!

Whether Britain exits the union or remains part of it, the markets will simply do what they always do - move, and present good money-making opportunities for astute traders… and, the stronger the movement, the more we make. After all, no money can be made in a market that does not move well (unless you are a scalper).

It is good to open trades based on what the markets are doing, not based on what you think the markets will do. Trending moves will develop further – something that good traders are prepared for.

Final Thoughts
Please use risk control methods when trading to prevent adverse moves from having an adverse effect on your capital, yet allowing you to take full advantage of favorable moves, though the best advice for certain traders may be to avoid GBP pairs completely until July.

GBP pairs will trend strongly this month, but no more than already witnessed this year, no matter what the outcome of this referendum.

Do not expect surprises when the public are anticipating them. Surprises come when the public are unable to anticipate them.

I’d like to conclude this article with the following quote:

What matters is your ability to pick up the flying gobs of money whizzing past your ears in the financial markets money storm.” - Louise Bedford

Azeez Mustapha
Currency Analyst
Tallinex Limited
The Jaycees Building, Stoney Ground
PO Box 362, Kingstown, VC0100
St Vincent and the Grenadines

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