GFunk
Long

Are Brexit fears oversold?

FX:GBPUSD   British Pound/U.S. Dollar
Obviously, being smart, sane, savvy and logical traders, we all recognise that there is a monstrous Godzilla formation looming over cable right now. I don't mean some obscure Japanese candlestick formation, but the actual Godzilla, poised to run rampant and squash the UK into smithereens if it votes leave in June.

I would contend that the opposite may be the case.

When the ever entertaining Boris Johnson came out as pro Brexit, there was a mini tumble in cable. Journalists perhaps not that au             fait with markets warned that our friend Godzilla was stretching and limbering up for action. Really, it wasn't such a big deal.

The fact is that Boris was expected by many to support the Government line. His declaration was seen by many as a politically motivated direct challenge to Cameron, and call to arms in the race to replace him.

New Labour were able to rule untroubled by the Tories for so long due to the Tories poisonous split over Europe. Over time, Cameron has managed to unite the party, but as the vote runs nearer, its becoming more apparent that the party could get torn apart once again. Boris' decision was the equivalent of setting fire to a bridge, and undermining the Prime Minister very publicly.

As seen with Blair and Brown, handovers can be troublesome affairs and breed instability and uncertainty over policy which genuinely unsettle markets.

The fact that we all need to remember is that markets price information in. People will be watching polls, betting markets, political declarations, corporate decision making and the like for inklings into how the vote will go. Investors and traders will respond to this data long in advance and prepare themselves accordingly.

There will not be a situation where a vote is made and then at 4am when the results are announced, the world jumps up and sells cable.

There may be a short term dip lower, but I suspect that this is an opportunity to get long.

Chart wise, as you can see here from the weekly GBP/USD             chart, there is a multi year down trend which at present is running in tandem with the 50W SMA lower. RSE looks uninspiring and set to drift along in the lower half of the range. Slow stochastics have shown an interesting bit of widening which are worth watching. It could be an indication of a push higher if continued, but equally a further cross is an indication of continuation.

The obvious thought is that there is tough resistance ahead and all the fundamental focus is on downside risks. However, as mentioned in my other post, Grexit is a very real possibility this summer, and the issue could overshadow the entire Brexit scenario.

Throughout the ever lasting eurozone debt crisis, the UK and sterling has offered investors a bit of safe haven effect. Should the UK look likely vote to leave we could see a dip to lows around 1.38 (approx), the long term low where I can imagine a boat load of orders sit, before investors pile in on the bid as the Greek situation causes systemic financial instability.... again.
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