The results of the UK’s EU referendum will remain the main focus throughout today and a key focal point for the coming sessions, days, and weeks. The true consequences to the UK’s economy and even the true impact on the global economy remain widely unknown. As such markets are likely to remain volatile and risk sentiment remain weak for the foreseeable future.
The main event for the last 24 hours has been the UK referendum where the UK people voted to leave the EU. Most analysts had ‘remain’ as their base case, the bookies odds were pricing an almost 70% chance of ‘remain’ outcome and the market had bought sterling up so far that they had totally priced out the risk of a ‘leave’ outcome. The elevated levels in sterling meant it was a sell either way, on a ‘remain’ fade or a ‘leave’ sell. GBPJPY dropped 2,700 pips on the day, while Cable dropped nearly 1,800.
Today is a good lesson about not blindly following the market, but rather trying to view the whole situation objectively and use common sense to assess the likelihood of various outcomes. In this case we had Cable higher than it was prior to the referendum announcement, having rallied 1,000 pips from lows simply on some polls that were almost neck and neck. These levels were clearly ridiculous as they suggested the risk of Brexit was all but removed.