Now that the epic battles between Jon Snow and Ramsay Bolton and between the Cleveland Cavaliers and Golden State Warriors have passed, it’s time we turn our attention to this week’s main event in the forex market: the EU referendum.
If you’re gonna try to catch some pips from this major catalyst, make sure you keep the following in mind.
1. Most forex brokers would rather be safe than sorry.
Not to discourage you from taking any trades during this event, but I think it’s worth noting that forex brokers themselves are upping their risk management game to avoid exposing their balance sheets and clients’ accounts to potential losses from any fast and furious market moves.
As it turns out, these industry players are still haunted by the ghosts of the 2015 SNB shocker, which triggered margin calls, wiped out several accounts, and even forced some firms into closing shop.Because of that, most brokers thought it best to put several precautions in place, such as higher margin requirements or close-only restrictions for certain instruments. If you’re not sure what your broker is up to, Forex Ninja has got you covered with his list of forex brokers’ adjustments for the Brexit vote.
I’m pointing this out to illustrate the magnitude of risk involved in trading this particular event, which could spur an unprecedented amount of volatility before, during, and after the actual referendum.
So if you’re the type of trader who isn’t used to trading around potential whipsaws, I highly suggest that you sit this one out and just reassess your biases once the official results are published.
2. Central banks are getting ready to step in.
If you’re thinking that all the ruckus might be limited to pound pairs or European currencies, think again! Word through the forex grapevine is that central banks are mulling a coordinated effort to support liquidity in the event of a Brexit.
Rumor has it that the Bank of England, along with the Swiss National Bank and European Central Bank, might join forces to shield equity markets from the shockwaves of a potential Brexit. If you recall, most central banks have acknowledged that the global financial market has just been stabilizing after the Chinese stock slump wreaked havoc last year, which suggests that they’re keen on shielding financial markets from yet another round of disastrous consequences.
According to an ECB Governing Council member, central banks stand ready to intervene with conventional instruments such as interest rates, repos, or swaps while SNB head honcho Jordan himself said that they will take an active role in the forex market if required. Even the Bank of Japan is drafting its contingency plans, gearing up to offer U.S. dollar funds to domestic banks once investors start hoarding the Greenback.
3. Sentiment shifting in favor of Bremain?
Judging by the price action leading up to the weekend, it seems as though risk appetite has picked up on renewed speculations that the U.K. could decide to stay in the EU. For one, the fatal shooting of MP Jo Cox was seen to have convinced a number of undecided voters to stick with the status quo, swinging the lead back in favor of the “stay” camp for some of the surveys.
A YouGov poll for the Sunday Times still showed a pretty tight race, with 44% voting to stay and 43% voting to leave. Survation’s telephone survey showed a reversal from their earlier poll results, indicating that 45% voted in favor of staying while 42% wanted to leave, while Opinium’s poll showed a tie with both camps at 44%.
4. When will the referendum results be available?
The polls are scheduled to take place June 23rd, from 6:00 am GMT to 9:00 pm GMT, with the official results set to be announced the following day. Keep in mind, however, that a number of agencies will be conducting exit polls so there should be a general sense of how the voting is turning out throughout the day.
If you’d been around to trade the Scottish referendum back in the day, you’d probably remember that a running tally of these exit poll results are made available online so a quick Google search on Brexit poll trackers should help you stay in the loop then.
But if you’d rather wait to get a first glimpse of the official referendum results, these are expected around 1:00 am GMT on June 24 with the final declaration set to be made around 6:00 am GMT.
5. GBP reaction might not be as straightforward.
If a Brexit is likely to cause a sharp selloff for the pound, then a vote to stay would spark a pound rally, right?
Well, the currency’s reaction might not be as clear-cut because the U.K. would be left with a considerable amount of political uncertainty either way. As it is, the Brexit issue has caused rifts within political parties that might persist even after the referendum.
Apart from that, profit-taking could be just as swift as the initial reaction to the poll results so sharp price reversals could be in the cards.
Market participants are likely to price in their expectations for the vote in the next few days so be mindful of “buy the rumor, sell the news” scenarios as well.