Should Brexit Fears Make You Cautious?
Global stocks are starting to sell off as the Brexit vote nears. But how much more room does the GBP have to dive?
By Cam White
Monday, June 13, 2016 - 00:00
On Thursday, June 23, a national referendum in the UK will determine whether the UK remains in the European Union (EU) or whether it breaks away from the EU. This upcoming referendum is being called the "Brexit" vote. A simple majority of better than 50% is needed to determine whether the UK remains a member of the EU or not. Right now, polling shows the vote may be very close.
Some argue that a Brexit will have a catastrophic impact on the UK economy, possibly plunging it into a recession. Others argue that the UK will become stronger economically if it is decoupled from the demands placed on Great Britain by the European Union. The impact on the markets is already being felt. Global stocks are starting to sell off as the Brexit vote nears. The slightest news can send the GBP and its associated currency pairs skyrocketing or diving. But how much more room does the GBP have to dive? On this monthly chart of the GBP/USD, you can see that the 1.4000 level appears to be a a strong support level that hasn't been breached since 2008. Prior to 2008, 1.4000 had been briefly breached in 2001 and in 1992. Does that mean that there is no room for the GBP to continue dropping? Absolutely not. But if the GBP/USD plunges through the 1.4000 support level, it will be significant. Let's look at the daily chart of the GBP/USD: The daily charts are chopping up and down, depending on the Brexit sentiment for that day. The hourly and 15-minute charts are extremely whippy. If you are a pattern trader on the GBP/USD, Brexit fears can make this pair and others far less predictable. Maybe the best thing is to sit on the sidelines until the Brexit vote. 10 days and counting...
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