How will the Pending Brixit vote influence the Pound's Value?
It is just six weeks until the Brits will hold their vote on Brixit, a choice between staying or leaving the EU. Most of the established politicians, the bankers and the elites seem to be alarmed there is even going to be a referendum held. Leaving the EU would hurt economy, the value of their currency, their standard of living and result in soaring unemployment they claim. These people forget Britain had an influential and successful global role for hundreds of years prior to the formation of the EU.
Recently there has been louder opposition to the noisy groups who want to stay in the EU. Boris Johnson, formerly the Mayor of London "suggests David Cameron is demented." Patrick Minford, formerly an economist for PM Thatcher and part of a group in favor of an exit said: "policymakers were treating the public “like fools” as he branded the Treasury’s analysis on Brexit as “riddled with bias”. "[The Treasury analysis] is just a load of complete nonsense. It tries to blind us with science and is dishonest and condescending. It treats us like fools and tries to terrify us."
The EU has long had a skeptical view of the British position, their failure to whole heartedly embrace all the terms of EU membership, and certainly the exit referendum. Now, however, as a reaction to what Evans-Pritchard refers to as the mandarins of Brussels and their intrusion in many facets of EU life, the attitude on the continent is changing. A recent MORI poll reveals a majority of citizens in France and Italy favor a referendum about remaining in the EU.
Brixit has long been regarded as bearish on the pound. There have been some wild claims the euro would gain to parity with the pound. This hype is no doubt intended to scare the millions of Brits who live in the warmer climate in Southern Europe, and scare them to vote to remain in the EU.
But perhaps the market has this wrong, and the British exit would merely pave the way for other exits from the EU. Certainly the Brussels overreach regarding the huge arbitrary fines on those countries which refuse to take their share of the migrant invasion will hasten that vote.
According to the CFTC report, specs are convinced the pound is going down, though the position in the last report was reduced to 57,502 contracts of futures and delta adjusted options. Recent polls show staying in the EU is favored slightly, but the poll internals found those who wanted an exit were stronger in their opinion than those who wanted to stay.
The recent run up from about 1.40 to above 1.47 cleaned the market of shorts, but uncertainty lies ahead. At a return to 1.46 I will consider trying the sell side, as there should be ample volatility in the weeks ahead. We need also pay attention to geopolitical events. An increase in terrorist activity in the EU or problems with immigrants will both increase the exit votes. The noise level relating to this vote is destined to increase.
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ABOUT THE AUTHOR Ralph Shell has enjoyed an extensive career as a professional trader, trading his own personal account profitably for over 20 years as a member and floor trader at the Chicago Board of Trade and Kansas City Board of Trade. In his early years Ralph studied economics and history as a graduate at Duke University. He traded his first foreign exchange contract in futures and options over 30 years ago and specialized in commodities. He has worked as a floor broker, analyst, and Assistance Regional Manager for various companies including Merrill Lynch and Refco. Previously an opinion leader at the investing mega-site seekingalpha.com, Ralph now writes exclusively for cashbackforex.com.
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