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Article / 21 June 2016 at 8:38 GMT

From the Floor: Brexit – irrational exuberance?

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  • Referendum is one of the biggest events in a generation – Hardy
  • Opinion polls mixed – it's still an open race – Hardy
  • Bremain rally evident in Asian equities overnight – Moltke-Leth
  • Keep net exposures low ahead of the referendum – Garnry
  • 'Mr. Yen' expects yen to rally as far as 100 against dollar 
  • Gold is on a roller coaster ahead of voting day – Hansen

By Clare MacCarthy

Sterling remains in celebratory mood and holding its gains following its largest 2-day advance since 2008 and less than 48 hours before Britain's polling booths open for what John J Hardy, Saxo Bank's head of FX strategy, calls "one of the biggest events in a generation". The general cheerfulness spilled over into Asian trading overnight as most major bourses tracked higher, reports Christoffer Moltke-Leth from the Singapore trading desk (chart below).  

But is this optimism warranted? A new ORB/Telegraph opinion poll overnight put the Stay side of the referendum campaign strongly ahead at 53% (up 5) and the Leave side at 46% (down 3). However, markets appear to be focussing on this promising poll and disregarding another fresh release from YouGov which shows a reversed forecast with the Brexiteers ahead at 44% and the Remains lagging at 42%. And, with the FT's "poll of polls" showing the two sides neck and neck, Hardy wans that this is still an open race while Peter Garnry, Saxo's head of equity strategy, cautions traders to keep their net exposures low ahead of the referendum. 

Asian equities in a happy mood:
 Source: Bloomberg

The renewed confidence that Brexit won't happen has pushed GBP above its 200-day average versus the dollar (chart below). "1.4750-ish is the high of the range and I would say a Remain vote should see pricing around 1.5250 as people start pricing in the potential for a rebound in the British economy," Hardy says.

Optimism isn't confined to the British currency this morning: Hardy points out an interesting prediction by the former Japanese finance ministry official Eisuke Sakakibara saying that the yen would strengthen and hit 100 per USD by the end of this year. Sakakibara is known as "Mr Yen" because of his past performance in influencing the exchange rate and Hardy believes this latest forecast would come to pass "if we see a Brexit and if we see risk appetite deteriorating again".

Besides the UK referendum today markets will be watching Fed chair Janet Yellen's monetary policy testimony that starts at 1400 GMT. But Hardy has no great expectations for this both because of the awkward timing and her dovish performance at the most recent policy-setting meeting "it'll be wishy washy testimony" he says.

GBPUSD zips past its 200-day moving average:
 Source: Saxo Bank. Create your own charts with SaxoTraderGO click here to learn more

Golden rollercoaster

Ole Hansen, head of commodity strategy, reports that the looming British decision is creating some technical trading with crude oil jammed in a tight range and specific oil factors "relegated to the back seat ahead of Thursday." Currently, both WTI and Brent have found resistance after retracing 61.8% amid signs that the recent rally is running out of steam.

Gold, meanwhile, is set for a roller coaster ride until the vote, says Hansen, with key support at $1,277/oz and $1,271/oz before resistance at $1,300/oz.

After the recent surge gold may be too skewed to the upside:
Source: SaxoTraderGO 

Finally, the heightened hope that the UK will opt to stay inside the EU is reflected in government bonds today and the German 10-year yield has jumped back to 0.06% having dropped into historic negative territory last week on safe-haven flows.

Sterling is still flying high but is this optimism warranted? Photo: iStock

Clare MacCarthy is deputy editor at

Editor’s note: From the Floor takes advantage of's unique real-time access to Saxo Bank’s various trading desks around the globe to put our community in touch with the developments that matter to their portfolios.

21 June
Alfa1956 Alfa1956
Gold by the barrel ? :)
21 June
fxtime fxtime
We have seen votes such as stay/leave Greece...however assuming that the UK remains we should assume the EU has effectively dodged another bullet for its potential break up but there are so many stresses to the EU that we will have another country sooner or later demanding an exit referendum. Also if the vote is expected to be close then regardless of outcome it is hardly a vote of confidence either way if we result in 52% one way and 48% the other. Lets hope we have a decisive outcome to prevent this saga rumbling on for years.
21 June
Clare MacCarthy Clare MacCarthy
Alfa1956 – thanks, fixed now. A bit of irrational exuberance on my part!
21 June
Clare MacCarthy Clare MacCarthy
fxtime – I fear we're in for years of this nonsense because as you say, a very close result is hardly victory. In fact it's a lose-lose situation.


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