Brexit: What Impact on EURUSD and GBPUSD?

Will tonight’s Brexit vote cause an increase in volatility? Perhaps, similar to the original Brexit vote? At least one of my brokers, Axicorp think so. It has sent out an email warning of possible dangers to open positions.

Frankly, I can’t see it. Increased volatility occurs as a result of an unexpected result. In this case, the unexpected result would be a passing by Parliament of May’s Brexit agreement. I rate the chances of this happening at less than 3%. That being the case, I can see that we’ll be seeing abnormal increases in the daily range. We may see increased ranges but hardly the volatility we saw in June 2016 (Brexit decision).

On the other hand, the price action in the GBPUSD does remind me of the price action just before the Brexit vote. The chart below shows the pair’s price movement at the time.

What we see is a steady rise from June 16 to the time the boats started to come in on June 24, 2016. Then, as the votes started to come in signalling that UK would leave the EU, the pair started to bucket.

The chart below shows the current price action of the same pair. From January 3, it has been rising steadily. Can we expect to see similar volatility? I doubt it. The sentiment is different. If the vote comes in as I expect, then I doubt we will see the kind of range we saw on June 24, 2016.

Given my view, how would I trade this scenario? Firstly, I prefer to trade the EURUSD. The reason is, its structure is more bearish than that of the GBPUSD. Secondly, I’m happy to take a position ahead of the vote due between 19:00 t0 21:00 (UK time). Thirdly, I’m going to reduce my position size for my trading to 50% of normal size.

What does the current EURUSD picture look like? The chart below shows the position.

We see a corrective structure where wave one and wave three are equal in time and price. For me, this suggests a retest and probable acceptance below 1.12150. Notice also, that the range of yesterday was far below normal after a large range up on Wednesday, January 9. Acceptance below 1.1420 will trigger, for me, a sell signal. My protective buy stop for the short position is above 1.7000.

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