With the EU referendum on June 23 for Great Britain to exit from the EU currency bloc, we should expect to see greater volatility from currencies. So far, the consensus going towards an exit has been unfavorable, as trading has been negative with any hint of them leaving. Yet the financial polls show strengthening support to the contrary; people think that, essentially, Great Britain will stay. There is also rumor that investors believe this should be good for the Euro, based on consensus.

Systemically, there are plenty of indications that currency volatility should go up with Poland, Greece, Sweden and France expressing a loss of confidence in the EU, in addition to Britain. This run-on effect points to greater volatility in the FX markets.

NOTEWORTHY

Also noteworthy are comments from former prime minister, John Major, who had been in favor of a free-floating currency during his tenure, is reported saying that Britain’s intention to leave the EU is ‘a campaign verging on the squalid’. Here’s a link to the report at MarketPulse.

PERSONAL TRADING

I’m keeping an overall negative bias on the Euro, despite there being volatile upside potential, I would look for overbought levels on any price spikes and sell.

Here’s a video of a mock trade I did today, June 9th. Since I had a sell signal, and also saw a textbook selling opportunity on the Euro, I thought you might like to see this mock trade, and how it played out for the day.

BACKGROUND ON STERLING AND EURO

The British Pound exited the so-called European Rate Mechanism (ERM), once before in 1992, causing billions in losses and famously making George Soros notorious as a master speculator, as he reaped £1 billion shorting the currency.

Politically, Great Britain has been at odds ever since the ERM started in 1979, and the U.K. also has a lot of opposition towards any type of compromising with other countries, as they are an island and can be fiercely nationalistic at times.

What this means for the onlooking trader, is that he/she must be very cautious thinking that any news or price activity leading up to a referendum can lead to profitable gain. In my own experience, I have never had much luck trading the British Pound with just technical analysis.

Keep in mind, this Brexit scenario is also the height of asymmetry. We're simply spectators or casual onlookers to what is not only information asymmetry but also asymmetry in interest. In other words, what interest do we really have in the British Pound? When the British Parliament is truly at odds with each other and has a fierce political interest in the future of their country.

It behooves one to be wary and focus on risk management, leading up to the referendum come June 23. I would lower the trade size, as I expect currency volatility could skyrocket up. And also look for very good trade entries.

WIth other countries following suit, there could be a lot of unexplainable oscillation in currency prices in the interim.The Brexit could leave treble damages to the Euro with other countries contemplating the same action in its wake. And I doubt Great Britain will make any of the same mistakes it did in 1992 when it decided to exit the ERM, the idea is their political agenda is to remain as strong as possible relative to Europe and the rest of the world. But there should be nothing but volatility in the meantime, during these crucial decision-making events.
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