The votes are in and the counting is well and truly under way in the UK’s referendum on EU membership. Early results are reflecting blue-collar (leave) sentiment while white collar voters are due later. Markets are like a coiled spring waiting eagerly for the first sniff of an outcome.
The market’s overall lean continues to price in the ‘’Remain’’ vote pulling through. While today’s market levels going into voting have surprised on the top side of GBPUSD and USDJJPY, we should be very cognizant that much of the activity has occurred in gaunt markets. For the most part, trading has been periodic amid dwindling liquidity. While we expect liquidity to deteriorate as we near the outcome, market depth is playing out as anticipated. We should expect a high level of volatility, bordering on excessive at times, as results hit the wires.
Turnout is projected at around 80%, which should favour the Remain vote. It was thought on a lower turnout would support the Brexit side as they were more passionate on the campaign trail. But calmer heads are prevailing in early sentiment. Crunch time is finally here, and it could be a photo finish with not a lot between the two camps.
The Aussie – bumpy ride ahead folks
The Australian dollar could see a move through 0.7750 with a possible retest of this year’s high of 0.7850 if the Remain side champions. All the active boxes would be checked off if a Remain scenario materialises. This would build on the combination of stronger risk sentiment, a likely weaker USD across the G10 complex and firmer commodity prices. In particular, copper, which is feeding off improving risk appetite and the weaker USD. But strap yourselves in for a very bumpy ride ahead.
The Yen – pushing higher – dropping lower
USDJPY has been rocketing higher on waves of risk on sentiment with few sellers stepping up to the plate. We’ve breached some very meaningful levels around 106.50 and price action remains extremely constructive. USDJPY was driven by US yields and an incredibly supportive rally in global equities. WTI popped above 50.00 as risk sentiment remains highly confident, but that can quickly turn, as evidenced from the first wave of results, which surprised the market with a stronger consensus for the leave camp than that which was priced earlier in the APAC trading session. It’s certainly a wild ride in early trade.
Volatility is unlikely to abate anytime soon as initial results are likely to skew opinion when the ‘’buy the rumour, sell the fact’’ mentality sets in today. We are seeing three big figure moves on the Pound and Yen as shifting sentiment changes with the results coming in. All in all, an exciting day lays ahead.