Volatile Market Conditions Seen After Brexit Vote

UK’s vote to exit the Euro zone on June 23rd, caused an extremely volatile Forex market. In fact, volatile is an understatement – it was more like a seismic Forex event. Sterling dropped to a 3 decades’ low OF 1.3122 against the USD on Monday a record intraday drop not seen in over 35 years. Though it saw a recovery back to1.3530, we see it as sellers taking profits. The overall sentiment remains to sell Cable.

Although there is no history to compare and know to gauge the impact of the decision, it appears most traders are maintaining short positions or staying out of trading the sterling entirely including related currencies, indices and stocks. In fact, after the small recovery we saw at the 1.3530 level, chief of ING Bank, Rob Carnell, quoted “I wouldn’t put too much weight on this move—we’re in uncharted territory now, I wouldn’t be going out and filling my boots with sterling”.

After such a statement from ING and also other major Forex analysts including banking sector giants predicting Sterling’s fall. Projected drops include the stocks of insurance and banking sector companies, and negative predictions that the sterling is bound to touch 1.12 level in coming years. It is obvious that the long term traders are bound to be on a short position. Time will tell how this all unfolds.

Greenback, Euro, Yuan,

After the UK exiting the euro zone, any hopes for the Italian banking sector to recover has also gone to dust for now. Thus the euro has also received jolts against the greenback. With both the major crosses EUR/USD and GBP/USD facing weakness, the market is really unpredictable at the moment.

The Euro holds 26.40% weight in Yuan Index CFETS and as a result, even the safe haven yuan is facing pressure after the vote.

The Dollar is predicted to have an uptrend against all the currencies following the vote and so far this holds true. For now, the US dollar index is seen rising from 93.04 to 96.74 since June 24th, and settling down now at around 96.03. Traders are looking at Gold and Yen as a safe haven.

Considering the present situation with stocks like Euro Stoxx 600 and even S&P 500 facing pressure, major pairs like EUR/USD, GBP/USD and their crosses are in weak positions. Considering the uncertainty of things, it seems logical to jump in with a short position, but in reality the exit vote has no precedence or historical data to support that decision and time will tell whether the long term outlook of the financial giants is correct.