Brexit Risk and GBP/USD

February 22, 2016

Brexit Risk:
As we briefly discussed in last Friday’s GBP/USD chart of the day, Brexit headlines have hit markets hard over the weekend and we’ve seen all GBP pairs open today with huge gaps.

GBP/USD 5 Minute:
GBPUSD gap
Click on chart to see a larger view.

Following the GBP positive news that Prime Minister David Cameron’s meetings with other European leaders in Brussels saw progress made in reforming Britain’s position in the EU, Cable longs would have been sitting pretty and plenty would have surely been happy to hold over the weekend.

“Leaving Europe would threaten our economic and our national security.”

“The choice is in your hands, but my recommendation is clear. I believe that Britain will be safer, stronger, and better off in a reformed European Union.”

With this, Cameron’s position on campaigning for Britain to stay in the EU has been made very clear, and now the lead up to a June 23 referendum begins.

But holding trades over the weekend in markets exposed to heightened event risk will always be a high risk, high reward endeavour and following London Mayor Boris Johnson’s Sunday comments that he would back Britain’s exit from the EU, markets gapped down hard.

“I will be advocating Vote Leave because I want a better deal for the people of this country to save them money and to take back control.”

Johnson is a highly influential and popular political figure in Britain. Support that will have a huge influence on the ‘leave’ campaign and why we see the gaps that we do.

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Chart of the Day:
While GBP rallied into the New York session close, the bulls’ joy was short lived as price gapped down 130 pips on the Monday morning re-open.

GBP/USD Hourly:
160222_gbpusd_hourly
Click on chart to see a larger view.

Whenever gaps like this form following weekend event risk, a gap-fill trade is always the first thing that comes to mind.

We can see here that price opened back almost exactly where the Cameron inspired rally began. The logical nature of where price returned to makes me nervous about a full gap fill, but technicals are technicals and price always gets what it wants.

Are you trading the weekend gap on Cable?

———

On the Calendar Monday:
AUD RBA Assist Gov Debelle Speaks

EUR French Flash Manufacturing PMI
EUR French Flash Services PMI
EUR German Flash Manufacturing PMI
EUR German Flash Services PMI
EUR Flash Manufacturing PMI
EUR Flash Services PMI
USD Flash Manufacturing PMI

PMI Monday!

Do you see opportunity Forex trading? Take advantage on your own instant $50,000 demo Forex account.

Dane Williams – @VantageFX

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