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Trading GBP/USD and Pound Pairs Less than a Month to Brexit

Trading GBP/USD and Pound Pairs Less than a Month to Brexit

2016-05-27 00:38:00
John Kicklighter, Chief Strategist
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Talking Points:

  • The UK's EU Referendum - also known as the 'Brexit' vote - is now less than a month away on June 23
  • Implied volatility for one-month forward has surged, but the 2-month duration has notably eased 25% from peak
  • While it may still be four weeks away, Pound trading will still be significantly impacted by Brexit anticipation

See how retail traders are positioning in GBPUSD, EURGBP and GBPJPY using the FXCM SSI readings on DailyFX's sentiment page. See the DailyFX Analysts' 2Q forecasts for the Pound in the DailyFX Trading Guides page.

We are now less than a month away from one of the most financial market's most troubling, scheduled event risks: the Brexit. The EU Referendum (colloquially referred to as the Brexit vote) is scheduled for Thursday, June 23rd. That is precisely four weeks from this Thursday. While to many shorter-term traders, this may seem a lifetime away; we are already entering the gravity of this very important risk.

We have seem comparable votes in the UK - the Scottish Referendum in September 2014 and UK general election in May of last year - generate waves for the Pound well weeks in advance of the actual ballot date. What makes this particular event even more exceptional is its scope. The 'spillover risk' from a UK withdrawal from the Eurozone has been highlight by the Federal Reserve, Japanese Prime Minister and IMF among others.

Potency and proximity make for a dangerous situation. For those looking directly at the Sterling pairs, there are appealing technical views from the likes of GBP/USD, EUR/GBP and GBP/JPY amongst others; buy many of the most enticing patterns are medium-term conditions that easily spill into the Brexit's influence. How should we trade around this critical event given its dichotomous imminence and distance? We discuss that in today's Strategy Video.

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