Talking Points:
- The UK vote to leave the EU triggered record breaking moves in the Pound and extraordinary moves for many markets
- Volatility is unlikely to simply retreat which offers opportunity but also a need for strategy and risk management
- Key benefactors with this fundamental shift are the Dollar and Gold; at critical risk are risk, equities and Euro
See how retail traders are positioning in the majors using the SSI readings on DailyFX's sentiment page.
Caution this past week served traders well. The historical volatility surrounding the Brexit made for exceptionally difficult trading - even if you correctly chose the ultimate outcome. Such exceptional market movement can make generate remarkable and erratic swings that blow through all but the most stringent and competent strategies. It is important to recognize the complications of the conditions we've experienced this past week as we are likely to more and more of these conditions and less of the long-standing tension and complacency of past years moving forward.
The Brexit itself was a high profile catalyst for a dangerously unbalanced global financial system, and that is where its impact will be most felt. For the Pound, the impact was undoubtedly severe. GBP/USD, GBP/JPY and most of the Pound-based crosses suffered their biggest single-day declines on record. The BoE's warning of a possible recession will hang over the country while the implications for monetary policy are already resonating in financing markets. Yet, the long-term impact will likely settle. Not so for the Euro. The inviolability of the European Union has cracked with serious repercussions for the aggregate economy and the currency's sanctified reserve appeal.
Volatility is likely to carry forward next week. The complexities and full fallout from the Brexit have certainly not been resolved in the 12 hours of liquidity to close out Friday. Risk positioning - from the S&P 500 to Yen crosses to EUR/USD - should be monitored closely. Tracing out the risk landscape will be difficult between Brexit volatility and the onset of an extended holiday weekend (US Independence Day). Tactical trading will be more difficult to navigate but still lucrative. The most appropriate view moving forward may soon be the big-picture themes that have built up so much pressure and potential over years of monetary policy, risk expansion and draining participation. We look at what trading conditions look like ahead in this weekend Trading Video.
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