TRADE THE BREXIT
- London Guild of Trading
- Nov 15, 2016
- 3 min read
WHAT YOU NEED TO KNOW.
In order to master a career in trading the financial markets, whether it be in the stock market or forex market, there are some major trends fundamentally which need to be understood properly. It’s said that most traders new to financial markets tend to lose capital very quickly. One of the reasons is down to lack of knowledge. Have you ever been in the situation where you place a trade, suddenly the market reacts with a spike in the opposite direction. You then immediately search the web for an economic calendar to see what news reports came out. To your discovery - there was no major news.
Fundamental news is just as important if not more significant than technical analysis. Institutions trade in such a way that it causes un-explainable spikes in the market. These tend to occur more often during times of economic instability such as ‘BREXIT’ & ‘US ELECTIONS’. In order to predict and be cautious of trading for profit, its essential you understand exactly whats happening in the financial markets on major economic events.
BREXIT.
The U.K citizens have voted to leave the EU. Many economists as well as traders, thought this decision would have negative outcomes for the UK. In post BREXIT trading hours, we saw a huge decline in the GBP against all major currency pairs. Here at LGT, we like to refer to this as the immediate aftermath.
The ‘Immediate aftermath’, does not dictate a long term decision. It’s merely a reaction of uncertainty.
With this being said, the UK’s service sector grew by 0.5% three months after the BREXIT. Analysts predicted a 0.3% continuation in growth, clearly the UK was not as badly tamed as we all thought. In addition to this, the OECD has forecasted a continuation in growth following the year 2017 from 1.7% to 1.8%. Although some risks do apply in certain area’s of the UK, overall, the UK is not doing so bad.
BOE has also predicted a potential 0.6% increase in growth during the year 2017. The initial impact tends to hone down upon consumer confidence, however CPI has levelled off back to its normal pre-brexit figures, to indicate citizens of the UK may not be so worried after all.
FOREX PERSPECTIVE
A Forex perspective on the BREXIT shows a steep decline in the GBP following the US Elections and other major news announcements. The GBPUSD chart shown below, emphasises on ‘immediate aftermath’, we spoke about earlier. To no surprise, a continuation downwards has occurred. Investors are seeking ‘SAFEZONE’, assets to put their capital into, since the build up to leaving the EU contains a whirlwind of uncertainty. Investors are seeking to invest mainly into commodities and the US Dollar (including other major currencies). This does not mean the UK economy is any weaker.
WHAT CAN WE EXPECT?
A technical & fundamental standpoint: We can see major support and resistance levels depicted on the chart above. These levels are where institutions have taken the price, therefore they must be respected as key price points in this currency pair. If and when the price sweeps into these levels, we look for opportunities of a bounce and change in the trend. in addition to this, keeping an eye on fundamental news around trade deals and relationships with other allies is very important to the currency. For example, Theresa May has been renewing relationships with foreign countries such as India - these calculated deals, will initiate confidence in investors and the GBP. This can lead to big movements in this currency pair in either direction.
At London Guild of Trading, it’s important to understand all areas of trading during economic events like the BREXIT. Our analysts dissect and understand all key data which can impact the markets in order to create a profitable and consistent return of capital.
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