In this 23rd June 2016 we have probably what could be the one and major market event of the year. Yes, we are talking about the Brexit referendum.
We had extrapolated the Titanic iceberg scene to this event so we can somehow picture the risks inherent within - not just when the results of the referendum are visible but during this whole week as well.
Despite currency results may seem obvious depending on the choice of the British, there are a few items that we cannot overlook in order to stay in safe harbour during what can be a perfect storm.
This could clearly mimic what happened this past 2015 - when the SNB decision to cut the CHF peg with the euro became a catastrophe not only to thousands of accounts holders worldwide. It also affected dozens of brokerages, even large and well established ones which went bankrupt due to iliquidity.
This was in less than 30 minutes..
So if we put all the pieces of this puzzle in place, we must take certain considerations before we think of our next trade, these next five days. And here we go:
1) If "Brexit" succeeds , yes the GBP will sink. But beware of little or absolutely NO liquidity in the markets and no control over prices. This means your account could be margined out in the blink of an eye.
2) In the same scenario, the EURO will be highly affected as well, and as a matter of fact the ECB has already announced an injection of liquidity to the common currency in such an event. This means, alike the GBP that the EUR will be most likely sinking but again, beware as there may be no liquidity being provided by banks in such a scenario.
3) Markets will probably head towards safe havens; and these are the greenback, the swiss franc and specially, the japanese yen. This has been confirmed in the past few days, specially when it comes to the JPY even against the rest of major currencies.
So what would be the recommended trade in the event of an iceberg coming right ahead?
Well, first of all we prefer to stay out of the markets as the safest choice.
Always remember that there will be a tomorrow to trade when the markets have stabilized. As an old fellow trader told me once, sometimes no trade, is a trade.
Secondly, if there was a trade to be made. We'd go for a currency which will be not right in the spotlight, against a safe haven.
This said, the sell of CADJPY would be the "safest" option in the middle of a hurricane.
If you consider that the definition of safety may be way from what we know under normal market weather.
However and as stated before, our best choice will be to stay out of the storm , wait until the markets clear and enter again with a clear approach of where things will go next.
At T&M Associates we provide technical & markets analysis that we apply in brokerage for a safe and successful experience in the currency world.
We wish you a safe, and profitable week ahead. But specially careful in decision.
T&M Analysts Associates
Skype: tmanalystsassociates
