One idea has sustained 'remain' optimism
From the announcement of the Brexit referendum, I've been saying the same thing: Buy the Brexit dip because voters almost always get election day jitters and vote for the status quo. That's been a great trade Thursday.
The 675 pip rally in the pound means the risk reward isn't good enough to stay in it.
The biggest and best trades in the world are the ones where the conventional wisdom fails. Too many pundits are secure in their belief that the Brexit vote will fail and too many traders are too.
Yes, time after time in referendums the undecided voters swing to safety. But it's not universal. That conventional thinking might be at risk and there are signs of a small last-minute shift to 'leave'.
The FT has a great story today about people lining up at physical currency booths selling GBP in favour of dollars and euros.
London today
Normally, that would be a screaming signal to buy but not after a 675 pip, 4-day rally. I still see a 95% chance of a 'remain' vote but the risk/reward just isn't there for a trade now.
Here was one of the people the FT spoke with:
Summaya, a 31-year-old employee of a retail bank who declined to give her surname, lined up outside the Foreign Exchange Services shop on Cannon Street. She said she was going to change "several thousand pounds" into US dollars and euros because she was convinced the public mood was shifting in favour of Brexit.
"I'm protecting my money. I will stick it under the mattress until Friday," she said, adding that Tuesday night's televised debate had swung opinion among her friends and colleagues in favour of Brexit. "People are changing their views."
The weather is also a factor. The 'leave' side is much more ardent even if it's smaller in numbers. Rain in the forecast probably won't keep them from the ballot box but the soft 'remain' supports may stay home, at the margins.
I think there two trades:
- Short for the next 10 hours, as jitters pickup, closing when the polls open
- Going with the result. If it's 'remain' stick ride the momentum for about 6 hours after the results begins to become clear. Sell around when US trading starts. If it's 'leave' stay short GBP right up until an hour or two before the Friday US close.
