FTSE 100: The Market Cast Its Vote, Will It Be Right?
- FTSE rallies strongly ahead of vote
- The market has effectively made up its mind with a strong surge in stocks and sterling taking hold
- Skews risk to the down-side
From the Thursday low under 5900 to yesterday’s high, the FTSE 100 rocketed over 6%, making for quite a turn of events from last week when the index fell sharply and looked poised to continue lower out of an H&S formation. GBPUSD rallied nearly 8 big figures in less than four days to reach its highest levels since day one of 2016. Big moves.
Obviously, the swing from “Brexit” to “Bremain” has been the catalyst. Uncertainty is why we have been bashful lately about trading markets directly impacted by the upcoming vote; even going so far as to abandon our trustworthy charts in favor of the sidelines. Under “normal” circumstances it seems the FTSE would have at the least struggled to break back above the 6050/80 region during this current leg up, but that area of strong support turned strong resistance proved to be insignificant as the drama continues to work towards a climax. For what it's worth, it did find resistance at the trend-line off the 4/20 high yesterday into today.
At this juncture in the game, with only a day to go before voting begins and two days before we know the outcome, establishing a position in either direction is filled with significant risk; risk we are not inclined to take, but one which has been taken by the market, collectively.
“What will happen? Obviously, that depends on whether the UK will stay or go. The risk appears skewed to the down-side at this time, with a bigger drop anticipated on a ‘leave’ vote than a large rise on a ‘stay’ vote. It wouldn’t be unsurprising to see a 5% decline, but it would be surprising to see investors react so happily to snatch up stocks to the tune of 5%. Generally, fear breeds larger moves than does euphoria…”
“To add to that: The positioning of the market will also matter and then the subsequent outcome. For example, if the FTSE were to continue the recent strength or maintain a solid bid into the vote ('Bremain' confidence rising), then a ‘stay’ outcome would likely have less impact than a ‘leave’ simply because the market has effectively priced the former in, no real element of surprise.”
The market has cast its vote, will it be right? Risk is skewed assymetrically to the down-side.
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---Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at @PaulRobinsonFX
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.