Forex Market Commentary
Brexit.
Without doubt this is the most astonishing political event since the collapse of the Soviet Union which has yet to play out across global markets as we still try to grapple with this.
The value of 2 trillion Dollars in global financial assets were wiped out today.
The result will mean a smaller UK, a potential break-up with Scotland and Northern Ireland who voted to remain in the EU and at least for this year there would be overwhelming downward pressure on the GBP/USD and EUR/USD.
I will save you the economic analysis. Essentially, in a nutshell the UK will have a smaller economy as Deutsche bank and others will pull out and downsize as Britain fades into irrelevance. George Soros expects GBP/USD 1.15 very soon. That remains to be seen but certainly downward pressure is there and this story for the global currency markets is not over yet. There is sure to be more turmoil next week. I do not think the UK public at large have understood how the unraveling of the EU membership will economically hurt the UK. This is incredible and potential the EUR/USD faces more downward pressure remains so long as the uncertainty continues.
Today from Japan to Europe to USA people are now waking up to realize that billions of dollars have been wiped off their equities and pensions.
The USD as I predicted, gold, CHF, YEN became safe havens.
As the vote count neared completion with the opening of Asian markets GBP/USD went up from 1.46 to 1.50 expecting a 'remain' vote and then sank like a stone to 1.33 when traders realized the staggering horror of a UK Brexit coming true. GBP/USD 1.33 has never been seen since 1985. That's 30 years. With the opening of the London markets by 9am the FTSE first dropped some 600 points wiping off 200 billion Dollars in value. The Dow also dropped some 600 points wiping off billions of Dollars in peoples 401k's. Now, traders will have to sift through the implications of Brexit with the possible problems looking with Scotland and N. Ireland. Investors across the board face the prospect of their GBP denominated assets falling with the arrival of a technical recession associated with a currency devaluation.
Now, turning to the vote; this referendum showed a complete disconnect between UK politicians and reality. This was an accident waiting to happen and will go down as the greatest miscalculation in British politics since Neville Chamberlain claiming peace with Germany in 1939.
A momentous Brexit leaves an uncertain UK as well as Europe. What we witnessed today was a more than just an issue of immigration and the failure of the EU to handle this issue. This was a popular backlash against globalization where the UK service sector prospered in the last two decades at the expense of the UK manufacturing sector. It is important to understand that today 70% of the UK GDP comes from a tiny area of London and South East of England area at the expense of the income distribution across the rest of the UK. Hence the regional estate boom and wealth distribution which favored a smaller percentage of the UK population in comparison to the rest of the UK. The breakdown of the vote also showed that it was elderly people who overwhelmingly backed the exit leaving young people furious at the vote that will dismantle their future hopes of being part of the EU. Young British people overwhelmingly voted for stay in Europe and so there is a generational shift as well as a massively misunderstood class/ educated divide in the UK. The vote map showed that in London and Manchester the stay vote was greater in areas where the middle classes and educated were represented.
Markets hate uncertainty. Now we deal with the fallout. But major central banks will coordinate to flood the market with liquidity to prevent any 2008 type credit crunch.
This is going to take a long time to sort out. For our purposes trading the GBP/ USD and EUR/USD we need to see the dust settle before identifying powerful new trends which for the rest of this year may appear overwhelmingly leaning to the downside on this historic, decisive watershed moment in post war European history.
A basic economic analysis will now show GBP/USD and EUR/USD will have less attraction for investment for the rest of this year. In time this play out to strength and Europe and UK will get over this shock 2-3 years ahead. But for now fears are in play over this leave decision. Trade will be a real issue as well as commodity prices just when oil companies found a new level of stability.
Without doubt this is the most astonishing political event since the collapse of the Soviet Union which has yet to play out across global markets as we still try to grapple with this.
The value of 2 trillion Dollars in global financial assets were wiped out today.
The result will mean a smaller UK, a potential break-up with Scotland and Northern Ireland who voted to remain in the EU and at least for this year there would be overwhelming downward pressure on the GBP/USD and EUR/USD.
I will save you the economic analysis. Essentially, in a nutshell the UK will have a smaller economy as Deutsche bank and others will pull out and downsize as Britain fades into irrelevance. George Soros expects GBP/USD 1.15 very soon. That remains to be seen but certainly downward pressure is there and this story for the global currency markets is not over yet. There is sure to be more turmoil next week. I do not think the UK public at large have understood how the unraveling of the EU membership will economically hurt the UK. This is incredible and potential the EUR/USD faces more downward pressure remains so long as the uncertainty continues.
Today from Japan to Europe to USA people are now waking up to realize that billions of dollars have been wiped off their equities and pensions.
The USD as I predicted, gold, CHF, YEN became safe havens.
As the vote count neared completion with the opening of Asian markets GBP/USD went up from 1.46 to 1.50 expecting a 'remain' vote and then sank like a stone to 1.33 when traders realized the staggering horror of a UK Brexit coming true. GBP/USD 1.33 has never been seen since 1985. That's 30 years. With the opening of the London markets by 9am the FTSE first dropped some 600 points wiping off 200 billion Dollars in value. The Dow also dropped some 600 points wiping off billions of Dollars in peoples 401k's. Now, traders will have to sift through the implications of Brexit with the possible problems looking with Scotland and N. Ireland. Investors across the board face the prospect of their GBP denominated assets falling with the arrival of a technical recession associated with a currency devaluation.
Now, turning to the vote; this referendum showed a complete disconnect between UK politicians and reality. This was an accident waiting to happen and will go down as the greatest miscalculation in British politics since Neville Chamberlain claiming peace with Germany in 1939.
A momentous Brexit leaves an uncertain UK as well as Europe. What we witnessed today was a more than just an issue of immigration and the failure of the EU to handle this issue. This was a popular backlash against globalization where the UK service sector prospered in the last two decades at the expense of the UK manufacturing sector. It is important to understand that today 70% of the UK GDP comes from a tiny area of London and South East of England area at the expense of the income distribution across the rest of the UK. Hence the regional estate boom and wealth distribution which favored a smaller percentage of the UK population in comparison to the rest of the UK. The breakdown of the vote also showed that it was elderly people who overwhelmingly backed the exit leaving young people furious at the vote that will dismantle their future hopes of being part of the EU. Young British people overwhelmingly voted for stay in Europe and so there is a generational shift as well as a massively misunderstood class/ educated divide in the UK. The vote map showed that in London and Manchester the stay vote was greater in areas where the middle classes and educated were represented.
Markets hate uncertainty. Now we deal with the fallout. But major central banks will coordinate to flood the market with liquidity to prevent any 2008 type credit crunch.
This is going to take a long time to sort out. For our purposes trading the GBP/ USD and EUR/USD we need to see the dust settle before identifying powerful new trends which for the rest of this year may appear overwhelmingly leaning to the downside on this historic, decisive watershed moment in post war European history.
A basic economic analysis will now show GBP/USD and EUR/USD will have less attraction for investment for the rest of this year. In time this play out to strength and Europe and UK will get over this shock 2-3 years ahead. But for now fears are in play over this leave decision. Trade will be a real issue as well as commodity prices just when oil companies found a new level of stability.
Please turn to Bloomberg for global bond yields:
http://www.bloomberg.com/markets/rates-bonds
In my global macro analysis the major barometers I am look at for 2016 are as follows:
USDX 95.407 +2.196 +2.82%
EUR/USD 1.111750 +0.006440 +0.58%
GBP/USD 1.368335 +0.005450 +0.40%
USD/JPY 102.1940 +0.5255 +0.52%
USD/CHF 0.973980 +0.003400 +0.35%
10 yr US T-Notes 131.343750 -0.046875 -0.04%
Crude Oil 47.60 -2.51 -5.01%
Gold 1315.505 +13.580 +1.04%
SP500 2037.41 -75.91 -3.59%
Dow 17400.75 -610.32 -3.39%
Always use your own better judgment and try to build a picture of trade logic combining both technical and fundamental understanding.
http://www.bloomberg.com/markets/rates-bonds
In my global macro analysis the major barometers I am look at for 2016 are as follows:
USDX 95.407 +2.196 +2.82%
EUR/USD 1.111750 +0.006440 +0.58%
GBP/USD 1.368335 +0.005450 +0.40%
USD/JPY 102.1940 +0.5255 +0.52%
USD/CHF 0.973980 +0.003400 +0.35%
10 yr US T-Notes 131.343750 -0.046875 -0.04%
Crude Oil 47.60 -2.51 -5.01%
Gold 1315.505 +13.580 +1.04%
SP500 2037.41 -75.91 -3.59%
Dow 17400.75 -610.32 -3.39%
Always use your own better judgment and try to build a picture of trade logic combining both technical and fundamental understanding.
Pieter Bergli - Trader X16
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