Trading the Cable in Brexit Week
Nervous Traders Gain Confidence as Polls Suggest Brexit Unlikely
Traders remain on edge as the Brexit referendum looms large. Monday, 20 June was a day of strong gains for the GBP/USD currency pair. The cable as it is otherwise known – a reference to the Atlantic Ocean cable that runs between the United States and Great Britain – is one of the most highly traded pairs in the world. At last count, the GBP/USD Pair was trading at 1.4668, with a day’s range of 1.4435 and 1.4707. The 52-week trading range for this currency pair is 1.3837 on the low end and 1.59109 on the high end.
Currency News on the Brexit Referendum
The fluctuations we’ve seen in forex markets over the past several weeks have been remarkable. The GBP’s implied volatility measures indicated price movements of +3%/-3% on a daily basis. But it is the Referendum Polls that are driving the currency markets, accompanied by risky asset such as crude oil. While the Remain poll has the edge over the Brexiteers, betting markets are providing a much clearer assessment of the situation. According to pundits, the probability of a leave vote has dropped below 30%, while it was markedly higher a week ago at 44%. Markets are exceptionally volatile and vulnerable at this point in time and short positions on the GBP with speculators have dropped by approximately 37,000 contracts for the week ending 14 June.
Likely Scenarios for the GBP/USD Pair with the Brexit
As we head into Thursday, June 23, 2016, currency traders are going to be having a field day with currencies like the GBP/USD, GBP/EUR, GBP/JPY, GBP/ZAR and others. The sterling has come under relentless assaults by speculators shorting the currency in anticipation of a Brexit vote. However, since the assassination of British MP Jo Cox we are seeing moves towards a Bremain vote. There are just three days left until the historic Brexit Referendum on June 23 and UK voters remain sharply divided on the issues separating them. For 2016, there is clearly no bigger geopolitical story than this historic vote. The ramifications of a vote for a Brexit are far-reaching and could destabilize the entire global financial system.
The most recent polls include the BMG Poll and the Opinium Poll from Saturday, 18 June. The results of these polls which took place from June 7 – June 10 indicate that the remain camp is leading the Brexit camp by 44% to 42%. The BMG poll indicates the Bremain camp is beating the Brexit camp by 53% to 47%. On Monday, 20 June, the ICM Poll surveyed some 3,001 respondents. According to this poll, the Brexiteers led by a margin of 5%. There will be several additional polls on June 21 including the ORB Poll, the June 22 YouGov Poll, and then the referendum on June 23. If the UK votes in favour of a Brexit, the process will take several years to complete. The first order of business will be a meeting of European Union leaders to discuss the outcome of the referendum.
The rally that began in Europe on Monday soon spread to Wall Street and investors wasted no time going all-in to equities once again. The dramatic reversal in sentiment is surprising given the momentum that was building when the pro-Brexit camp was gaining ground. However, analysts and currency traders are urging caution ahead of this vote. The vote is evenly split among undecideds, yes and no campaigners. It will all invariably boil down to who turns up on Thursday and how they vote. Meanwhile, the UK economy remains under pressure – regardless. For now, stocks are rising and that bodes well for the FTSE and the GBP.
About Brett Chatz
Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise in online trading for iForexTrader.co.uk.