Brexit Vote Today Could Cause Excessive Volatility

Brexit Vote Today Could Cause Excessive Volatility

The Brexit vote today is likely to create excessive volatility in the British Pound currencies.

Brexit Vote and GBPUSD
Brexit Vote and GBPUSD Pixabay Images

As discussed during the Sunday evening Forex Breakdown, the GBPUSD has retraced up to the ATR (a 200 pip move).  Will it continue upwards?

The daily chart chart shows that the Stochastics is potentially oversold and a strong bullish bar developed yesterday, as anticipated.  Price is currently testing a resistance level at 1.3221 and with the previous bullish candlestick should break through the ATR (red plus sign). 

Brexit Vote Today Could Cause Excessive Volatility - GBPUSD Daily ChartHowever, with the upcoming Brexit vote later today (expected to be around 7pm London time), buyers may be timid to enter a long position or hold through the vote.  Although Prime Minister Theresa May was able to secure legally binding changes regarding the Irish backstop with the European Union late Monday night, the vote will need to pass Parliament by a majority.  If the Prime Ministers reject May's deal again, as they did in an earlier vote, then another vote is expected on Wednesday regarding leaving the European Union without a deal or a vote on Thursday regarding a delay in leaving.

Additionally, the six hour chart, shows that the Stochastics is potentially overbought.  This could indicate a potential retracement prior to the vote, pushing price back down to the ATR at 1.3065.  Again, with some economists predicting the GBPUSD could go as low as 1.2000 due to the turmoil around the Brexit deal, traders are hestistant to enter the market prior to the vote.

GBPUSD 6 Hour ChartThe Nadex Touch Brackets allow traders to limit risk on entry, which is important during market volatility.  So for example, the GBPUSD is currently trading at 1.3230. 

A trader with a bias to the upside could choose to buy the touch bracket GBP/USD 1.3185 - 1.3435 TB 9 at 1.3232 for a risk of $47.  If price touches the floor (1.3185), then the trade is exited automatically with a loss of $47.  However, if price goes up to the ceiling (1.3435), then the trade is exited automatically with a profit of $203 (excluding exchange fees).  On the contrarian side, if a trader has a bias to the downside, then they could sell the GBP/USD 1.3035 - 1.3285 TB 11 at 1.3227 for a risk of $58.  If price reaches up and touches the ceiling (1.3285), then the trade is automatically exited.  Or, if price reaches down to the floor (1.3035), then the trade is automatically exited with a profit of $192 (excluding exchange fees).

GBPUSD Nadex Touch BracketOf course, the trader also has the option of exiting at any time prior to price touching the floor or the ceiling.

 

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