Brexit: what to expect

Brexit: what to expect

Since the referendum, Brexit negotiations and rumours have had major effects on the Pound. British Prime minister Theresa May’s latest statement to the House of Commons was significant for the pound and its movements against other currencies. It was not quite the ‘flags and fireworks’ that many in the media had predicted. In the absence of clear progress, many residents of the UK are preparing for the worst, but traders everywhere are already taking advantage of this massive forex goldmine.

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2016 and the surprise result

Looking back to the night of 23-24 June specifically, it became clear fairly quickly that "remain’s" chances weren’t nearly as good as most people had predicted. It started in Sunderland. That result – which left 22% above "remain" – kick-started a huge selloff in the pound. Another dramatic case of the media affecting market sentiment.

brexit GBP selloff.jpg

The votes were counted, David Cameron resigned, and the pound just kept falling. The Bank of England cut its base rate to the lowest level ever since its independence from the Treasury: it looked like freefall for sterling.

What changed in 2017 and 2018?

One of the main drivers of the Pound’s recovery was the economic data release(s) that followed.

GPB rise.jpg

The Brits breathed a sigh of relief. 2017 and early 2018 saw a 30-year record low unemployment, better GDP growth and inflation topping 3%. The rise was believed by many traders to be forced, and a massive turnover loomed in the shadows. They were right.

 

2018 coming to an end: where to now?

The short answer is that it depends on the results of the upcoming negotiations. The GBP is extremely sensitive to news releases and most traders are rightly relying on fundamental analysis only. Rather like an aeroplane with a crippled engine, in the absence of any rosy releases to power the sentiment, the GBP reverts to a freefall, making "sell" the order of the day.

back to freefall

Looking at a more targeted timeframe, as might be used by a daytrader, it’s clear that the Pound will likely continue its fall, but there are some periods of pullbacks and volatility. So what's causing these pockets of profitability for late investors who didn't sell GBP from the start?

the cycle

As the merry-go-round of press releases continues to fuel the micro-turnovers, traders are enjoying the forecasting opportunities.

 

Pro tip: pending orders can replace stops

For a daytrader who follows the news, there can be many opportunities to trade with the short-term trends. 'Never trade without a stop loss’ is certainly good advice, but it’s only one side of the coin. In reality, it’s quite possible to trade the pound without a stop loss, just not without a way of stopping your loss: Here's where pending orders come in. If the pound is currently going down, traders will obviously start selling against the dollar. Instead of setting a stop, they could make a pending buy order.

Choosing ‘Buy Limit’ means that MT4 will automatically open a buying trade for GBP-CHF if the price reaches 1.30550. This means, in effect, that the trader can limit their potential loss to a set amount. If the pound’s moving one way against the dollar, it’ll almost always be moving in the same direction against the franc.

An often overlooked aspect of this is the carry trade. Carry trading means attempting to profit from the different interest rates between currencies. In this example, the dollar base rate’s 2-2.25%, the pound’s 0.75% and the franc’s -1.25%. The trader could then be credited with positive carries for both the original order and the pending order intended to limit losses.

The bottom line: Changing sentiment and opportunity

Mrs May’s speech didn’t do much to cut through the ‘noise’ on the charts of pairs with the pound, but short-term volatility like this can mean trading opportunities. Setting fairly tight stops on the lower timeframes can allow traders to benefit from these knee-jerk movements that are common during important news releases. Ultimately, it still remains unlikely that the UK will crash out of the EU with no deal and no transition period in March next year.

What traders should be looking out for are rumours and news reports that indicate significant changes in sentiment. It’s these combined with important statements like Mrs May’s which are the main drivers of opportunities to trade on Brexit.

If you are planning to be one of the many traders looking to take advantage of Brexit, Exness keeps their traders informed on the latest developments as they happen. Signing up and logging in to an Exness account has never been easier. Come and see why traders are calling Exness the number one trading provider in the world and be at the forefront of Brexit Trading.

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