BREXIT FOREX TRADING UPDATES
I hope you all had a lovely weekend and I’m sure for those of you who live in the UK couldn’t escape the media hype around BREXIT. The polls differ and they are not considered accurate however they are pointing towards the leave side which is making the markets very jittery and nervous. You can see this in the price of Gold, US treasuries and the Yen have been strengthening as these are considered safe-haven assets. The reality is, it may go either way.
If the vote is to leave, we could see a very quick domino effect with rumblings coming from France about their own EU referendum vote. If it is leave, there will be an immediate EU meeting of finance minister to try to calm the markets. The EU may try to renegotiate the deal with Cameron to try to keep the UK in, but if the EU gives more concessions than everyone else, it’s likely that other members will want the same- especially as it relates to refugees. The EU is in a much weaker position now than in 2014 and cannot drive the process the way it did with the Greek referendum, plus the UK is not Greece. Cameron may even have to call elections and resign as there are many conservative MP’s who are not happy with the prime minister’s stance on Europe. Even with a stay vote, Cameron’s position is not safe with leadership challenges a real possibility. That will not do anything good for market volatility even if the vote is to remain.
There is no strong political leadership in Europe right now like there was when Grexit nearly happened in 2012. The countries were unified in their belief for Greece to stay, the other major countries are very quiet on Brexit such as Spain, Italy, Holland, and Portugal, they each have their own problems selling the idea of a unified Europe to their own people and a Brexit Forex Trading will not go down well.
French and German elections are approaching next year and we all know how politicians can’t think past the next election. If Brexit Forex Tradinghappens this would be a disaster for both Merkel and Hollande with the refugee crisis already putting immense stress in both countries, Brexit could be the tipping point for their own departure next year. But I’m sure they won’t mind as they can always get a job as an EU commissioner for life with no electorates or elections to deal with.
The amount of red tape both sides EU and Britain will have to cut through will likely take years as all our trading with the US, China, Australia, etc. will become null and void as we trade under the EU regulations. Of course, this does not mean trade will stop it will just take time to re-negotiate new trading agreements.
If the vote is to leave, both Draghi and Carney will have a major job of trying to calm the markets and prevent the Euro and pound from crashing. Luckily from the UK perspective, it has its own currency and central bank so can at least defend the pound if the markets do panic. The problem the ECB will have is the lack of continuity in the monetary policy as Germany is consistently attacking the ECB and Draghi for the measures. it’s taking to stoke inflation and growth. Germany is now challenging the ECB’s Bond buying programme in the German High court, saying it’s not even legal. Not the sort of situation one needs when there is a full panic on. Even if the Germans win in their own courts, it will likely to end up in the European court where 70% of all British challenges to EU rules have failed. The attempt of the German Government may only be a way of appeasing their own electorates as the German people are deeply unhappy with negative interest rates due to the large saving mentality of the Germans.
There is no real way to predict how the markets will react with absolute certainty. There could be an outflow of capital from Europe and the UK to the US and safe havens such as the Yen and Gold. Many Investors are probably sitting on the side-lines in cash awaiting the result. The markets don’t like uncertainty, they get jittery and whip saw around and uncertainty is exactly what we have right now.
Even If the vote is to remain, I believe the damage is already done to the European Union, in 2012 Greece was not allowed to leave for fears of Spain and Ireland leaving and just take a look at how that’s worked out, Greece is in a severe depression with no signs or the ability to get themselves out of it. Fast forward four years Britain is now having its say on the EU, Spain will likely be next as will Portugal, Sweden and so on.
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Have a beautiful trading week!