Article / 09 June 2016 at 9:00 GMT

Saxo on Brexit: Strategy, dexterity and Britain's D-day

Managing editor, / Saxo Bank
  • Referendum vote on UK membership of European Union takes place on June 23
  • Vote will decide if the UK remains part of the EU or leaves
  • Too-close-to-call vote will increase volatility around GBPUSD, EURUSD
  • Saxo Bank's team of strategists to assess how to handle volatility
  • Strategies for FX, equities, commodities, stock and FX options on campaign agenda
  • Keep it on our Brexit pages throughout the runup to the vote


Now there's a chap who probably hasn't quite made
his mind up 
which way he'll go. Photo: iStock

By Martin O'Rourke

There was a period during the second half of May when the obituaries for a result in favour of a Brexit on June 23 were already starting to be penned as the prevailing view was that the notoriously conservative UK public would opt for remaining part of the European Union. Not anymore.

The Daily Telegraph's shock poll on June 6 showed that of nearly 19,000 subscribers to the newspaper, a stunning 69% were in favour of a Brexit with just 29% opting for the 'Remain' camp.

Of course, the Telegraph has a well-known and proudly asserted right-leaning tradition. It's a fair assumption that a sizeable majority of its readership would not only gladly form a part of any campaign that enshrines the great in Great Britain, but would also, in some corner of their mind, even contemplate a return to empire.

But such caveats aside, this is still a stunning number and has dramatically shaken the many smug assumptions that the vote in two weeks would see an automatic reversion to form and a reassertion of that most time-honoured principle, "better the devil you know".

That might still happen. The UK public really doesn't like change and whatever ambivalence it may feel towards the European Union and its continental partners, Britain's membership of the union has been in place since 1973. A vote in favour of leaving on June 23 would be the most dramatic of divorces and a devastating split for a 43-year old relationship.

And yet, the nagging suspicion that Britain just might decide to go it alone doggedly continues to pervade. The 'Remain' camp led by UK prime minister David Cameron and his chancellor-lieutenant George Osborne very deliberately decided to take on the 'Leave' constituency and the rebellious elements in their own Conservative Party when they set out their manifesto for the stunning UK election victory of May 2015.

Cameron must have hoped that a full-frontal confrontation with the dissenting elements of his backbenchers would ultimately seal his legacy and Osborne was no doubt more than willing to throw his hat into the same ring as part of his campaign to secure an orderly succession to Cameron's position either at or before the next election.

Poison chalice

What must have seemed a manageable high-risk strategy to both men 18 months ago has proved to be anything but. While they have wheeled out the likes of US president Barack Obama and Tory grandees such as Michael Heseltine and ex-prime minister John Major to buffer the 'Remain' case, the very use of such establishment figures threatens to become the rock on which the strategy is cast asunder.

The breakdown of the social contract across the globe has been well-documented in Saxo Bank these last few months, not least by chief economist Steen Jakobsen in a pivotal piece in March. The rise of Donald Trump in the US, the prominence of Podemos in Spain, the election of the anti-crime hardliner Rodrigo Duterte in the Philippines and the unceremonious turfing out of Ireland's ruling government in February despite an astonishing GDP growth rate of 7.8% all speak of a disenchantment with the ruling elites that shows no sign of subsiding.

That groundswell has in fact been crystallising for some two years, spurred in part by the Greek euro crisis and escalated by the refugee crisis of 2015 that threatens to become an even bigger issue this summer. And the roots of this disenfranchisement can be traced in linear fashion all the way back to the global financial crisis of 2008 and the perceived get-out-of-jail-free card handed to the banks for their role in landing the globe in a sea of pain that has seen the prevalence of zero-hour contracts and welfare cuts inevitably weigh on the more vulnerable in society.

Set against such a context, a reliance on the pillars of the establishment to strengthen the case against Brexit has become a poison chalice. And Cameron's famous "we're all in this together" speech in 2010 has also come back to haunt the prime minister and play its own not-insubstantial role in fueling popular discontent.

Never it seems has a country as conservative as the UK been more ready for a revolution than now and with a celebrity-loving Boris Johnson to look to for inspiration, there is a charisma gap between the former London mayor and, say, Osborne that is a chasm. 

Gaffe-prone, Eton-alumnus Johnson may be at times — witness his extraordinary "part-Kenyan" attack on Obama's intervention in April — but his ironically anti-establishment position has found its following among large swathes of UK society.

This theme we will no doubt return to as Jakobsen wades into the debate later in the campaign.


Is this what London might look like if there is a Brexit or if we remain? Photo: iStock

Charting Brexit

The wary trader might then, given the obvious uncertainties going into June 23, choose to switch off the screens, head for the beach and settle for watching England, Wales and Northern Ireland take on the rest of the continent in the European football championship starting on June 10. It is after all a far safer form of sanitised warfare than the referendum debate and decision threaten to be.

But at Saxo, we think there are various ways the nimble trader can look to play the market and over the next couple of weeks — starting today — our SaxoStrats team will begin outlining how to approach the inevitable volatility inherent in the runup to the vote.

That will of course mean taking a stance and while caution will inevitably underpin the overall message for the coming fortnight, the likes of forex head John J Hardy, commodities chief Ole Hansen, and equities strategist Peter Garnry will make their case for various trade positions based on YES/NO scenarios.

What might happen to sterling and the euro in the event of Brexit will inevitably form part of the debate and we can guarantee that all the best analysis of real-time events in the lead up to June 23 will be readily available on through our unique access to our team of experts.

Sterling has fallen considerably since the second quarter of 2015 and could face further downside if we get a vote in favour of leaving the European Union on June 23.
Source: SaxoTraderGO

We'll also be taking a look at how FX Options might be the safer way to handle volatility in forex markets with a special webinar that will outline a number of scenarios as we enter the last lap. If you haven't accessed our webinars before and wanted to know more, check out our webinar page here where you can also find an introduction to FX Options markets.

The broader context of Brexit will also form an integral part of the campaign as we look at the wider implications of a decision to exit covering all manner of topics including security, devolution, bonds, the sanctity of the EU itself and the ramifications of a Brexit across the globe.

Finally, we'll give the platform over to our team of experts on the day of the vote and June 24 when the results are in for a TV debate that will not only provide last-minute guidance on how markets might react on the day, but also what the outcome means for your portfolio.

All in all, this promises to be a pivotal, exciting and perhaps jaw-dropping couple of weeks with the decision very much in the balance. With one-in-four of the electorate suggesting they could yet change their mind, such a swing prospect means that we really can't call it and we think anyone who tries to is taking a big risk.

But our experts will. nevertheless, put their neck on the line with up-to-date opinion and analysis.

They can't promise to always get it right. But they can at least help you determine your strategies with top, to-the-minute insight into market developments. If you're a trader, this has to be the place to be.

Trading the Brexit vote?
Find more analysis, insight and essential resources on our dedicated Brexit page.

e The awful plight of the refugees in Europe could reinvigorate the 'Leave' campaign. Photo: iStock

Martin O'Rourke is managing editor at Saxo Bank

09 June
Michael O'Neill Michael O'Neill
Great article. The referendum will be a fun time for nimble traders and even more fun if they win.
09 June
Martin O'Rourke Martin O'Rourke
Thanks Michael. Feel free to share!
09 June
fxtime fxtime
Options seem fully priced for risk protection premium at present. But that sort of skew is normal......nearer the vote we might be able to get a cheeky OTM straddle that only seeks volatility to earn and that is one thing that should occur?
15 June
doretta blake doretta blake
excellent article Steen


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