Credit: Shutterstock photoWhere is sterling headed if the vote is for Brexit or no Brexit? This is a question global traders should be asking as the only thing for sure is that the currency will gap one way or the other once the outcome is known.
Markets, whether currency or other, react most when there is a surprise. In this case, the bigger surprise would probably be a vote for Brexit as many assume the status quo generally has an edge even though this is a vote in uncharted waters that could go either way. This is why polls are being taken with a grain of salt. If you look at our tracking poll (see latest results below), which asks the question, Do you expect the June 23 Brexit referendum result to be the UK leaving or staying in the EU?, the expectations for Leave may be exaggerated but they continue to show a passion and motivation to vote. We will see if turnout is the deciding factor or fear that swings the undecided vote for the status quo.
Where is GBPUSD Headed?
When the referendum was announced, I read some bank forecasts that GBPUSD could fall by 20% on a Brexit outcome. Using the current levels, this would suggest a risk for 1.14. Looking at charts, the low around 1.35 set during the financial crisis would be a major level to watch and my guess is that central banks around the globe would be standing ready to intervene jointly, if only on behalf of the Bank of England, to cushion a negative reaction.
On the upside, should there be a no Brexit result, the question is what would be the proper level once the risk premium is removed as a relief rally would ensue. This might depend on where GBPUSD is trading just prior to the referendum but if I had to guess i would say 1.55 with 1.60 being tough if an overshoot. However, there is greater potential for an overshoot on the downside based on what side would produce the greater surprise. If you want to take a symmetric approach then 1.30-1.60 might be a wide band with moves outside of it probably hard to sustain. Of course, sterling's value vs. other currencies would be a key focus as well. However, as I said, this vote is one in uncharted waters so making a forecast is more guesswork than science.
Selected quotes from survey participants:
Over the last 2 months, I simply don’t put anything past the establishment. I find myself cringing at being a bit conspiracy leaning, but the lies that have poured out from the IN side for the EU is astonishing. Yes I agree Vote Leave have been stupid too, but nothing in comparison.
I think we will vote out, but I am not sure if the result will be implemented. After all, as the EU says, ‘vote until you get it right’.
In the end it will be for remain, not because people like the EU but because they are scared of the unkown.
I will decide my future as a result of the referendum. I am going away on the 30th June for two weeks and afterwards if Remain wins will pack my bags and leave this country.
One thing to consider in Polls vs Bookie - the bookie is only concerned with the cash risk - so one stat to consider is that 70% of the bettors are betting LEAVE but 73% of the cash is coming from 30% REMAIN -- but in the election those 70% small LEAVE bettors have more than twice as many VOTES
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Brexit Poll Results:
Brexit = vote to leave the EU
No Brexit = vote to stay in the EU
Past Week: UK respondents continue to express a strong Brexit expectation
Past week: Non-UK expectations for Brexit fell but with a smaller sample
Breakdown of Total UK vs Non-UK Respondents in our poll
As I have been noting, sterling continues to act as a barometer of Brexit sentiment and closed down sharply on the week with the first sub-1.44 close since April 21 (1.4260 vs. 1.4516 on June 3). This suggests increased concerns over the referendum outcome or at least increased defense ahead of it.
Note GBPUSD 1.3836 - 1.4769 is the range that has traded since the June 23 referendum date was set. The range for the week was.1.4180-1.4600. Worth noting is that GBP also traded weaker vs. other currencies, such as the YEN and CHF, which are acting as safe havens ahead of the vote. In any case, expect more volatility in what will be an increasingly thin market ahead of the June 23 referendum.
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Jay Meisler, founder
Global Traders Association
jay@tradersadvocate.com
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
