We’ve got a potentially huge volatility event coming with today’s U.K. parliament vote on Brexit. Here’s a couple tips to manage risk in case you’re bold enough to trade it.
Intermarket Snapshot
| Equity Markets | Bond Yields | Commodities & Crypto |
| DAX: 10860.82 +0.05% FTSE: 6882.57 +0.40% S&P500: 2600.37 +0.69% DJIA: 24011.62 +0.43% |
US 10-yr 2.701% -0.009 Bund 10-YR 0.21% -0.022 UK 10-YR: 1.265% -0.032 JPN 10-YR: +0.021% +0.009 |
Oil: 51.85 +2.65% Gold: 1294.40 +0.24% Bitcoin: 3642.80 -0.77% Etherium: 127.27 -1.68% |
Fresh Market Headlines & Economic data:
- Canada home prices fall for 3rd straight month in December
- U.S. wholesale inflation falls at end of 2018 on lower gas prices, PPI shows
- Empire State manufacturing index slumps again in January to lowest level in more than a year
- Theresa May’s Brexit plan appears doomed as key Parliamentary vote looms
- Euro zone trade surplus declines in November, energy imports rise
Upcoming Potential Catalysts on the Forex Calendar:
- ECB’s Draghi addresses European Parliament at 3:00 pm GMT
- U.K. Parliament votes on Brexit Deal (tentative)
- Fed’s Kashkari speaks in Rochester at 4:30 pm GMT
- Fed’s George speaks in Kansas City at 6:00 pm GMT
- Fed’s Kaplan participates in Q&A in Plano, TX at 6 pm GMT
- New Zealand Government 5-month Financial Statements at 9 pm GMT
- Japan PPI & Machinery Orders at 11:50 pm GMT
What to Watch: GBP/USD
GBP/USD is definitely the pair to watch today with the fast approaching vote on British PM Theresa May’s Brexit deal by the U.K. parliament.
This is an unprecedented event with potentially monumental consequences for the U.K. and the European Union, so we’re going to largely skip the technical analysis because it’s likely no one will follow any short-term patterns in a situation like this.
The only thing we will say is that liquidity is extremely important for anyone trying to trade this type of situation (which is why we’re looking at GBP/USD), and a breakout play is likely the scenario to go with given that momentum could be the result and it could be a move much more than a daily, or even weekly, ATR move. Reversals could be a play, but something very, very short term in the hour or so after the event.
For trader who are bold enough to trade this event, remember a few things:
- Keep your risk tiny. Sure this type of situation can be a huge win for your account, but it can also crush it and maybe even put you in a margin call situation. The general practice is no more than 1% to 2% risk on a trade, but for days like today, use a really wide stop with no more than 0.10% risk. Liquidity risk is real with unprecedented events so don’t be caught up with a big position and no way to get out.
- The situation will be fluid. Yes, there is a binary result to the vote, but that doesn’t mean something can’t come afterwards to change whole story. Whether it’s a surprise deal, commentary from government or monetary policy officials, or whatever else, something could possibly pop up to reverse the market’s sentiment. If you have risk on during this event, it’s probably a good idea to be focused on the news if you do.
- Remember that traders are risk managers first and foremost. If your situation doesn’t allow you to keep your risk low, just don’t trade. The market will be there tomorrow and opportunities will always come. Preserve capital always because there’s little to no chance of coming back from big losses or a blown account.