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Time for calm heads - post Brexit emotion is rife but there are big opportunities coming up!


Mercury

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Keep calm and carry on!

The outpouring from the beaten Remainers has been eyeopening and astonishing in the immediate aftermath of the vote result. The internet has been buzzing with rampant negativity and scorn being heaped on Leave voters, aided and abetted by the media (no surprise there) but also some highly irresponsible politicians like the leader of the Lib Dems and Farage gloating - I cheerfully anticipate UKIP being marginalised now their reason for existing is gone.  We have even seen some people declaring the referendum unfair: it should have been a 60/40 hurdle; it should require other checks and balanced such as a vote in parliament; it should be suspended until the Leave people come to their senses; it's not legally enforceable anyway so parliament can ignore it.  They don't seem to realise that all of this is highly undemocratic, just like the EU and that is the chief underlying reason the vote fell for Leave in my opinion.  All this will abate in a few days as life carries on as normal.

 

Never mind the politics, what about the Markets?

Many people, even educated, intelligent sensible friends of mind, are saying "look at the markets!  It has been a terrible mistake!"  But as we traders know the markets always overreact and more so this time given the seeming certainty the markets had that Remain would carry the day.  Given the heavy rally in the week running up to the vote the fall was not surprising and if you look at the net move on GBPUSD from the 16 June low (prior to the pre Brexit rally) to Friday's close for example the drop is only 2.4%.  And on the FTSE the same measure is a gain!

 

I'm not saying business as usual but I am saying the reaction is being misreported in the media and everyone needs to calm the **** down!  I think it will not be until middle or end of next week that some semblance of rationality reasserts itself and the task before us is to figure out which way the long term trend is now going, and if we do then big opportunities are there because while Brexit may not spell the end if could be (is for me) the beginning of the end.

 

FX & Commodities

As for me I do not think Brexit changes the view on the currency markets, the long term trend remains intact and if anything has simply been reinforced.  I will post specific analysis on each FX cross in due course for those that like a bit of technical analysis but in short I still believe DX is heading up and GBPUSD and EURUSD are both heading down.  Initially I see a bounce up in EURGBP but shortly thereafter I see EURGBP also heading down as people realise the EU has far more to lose as a result of Brexit than the UK does.  If you watched the video I posted on Thursday you will see the fundamentals argument for why GBP was going down anyway so no change at all here, just acceleration.  However I am now convinced that parity on GBPUSD is a likely scenario rather than just a possibility and the EURUSD will go well below parity.  USDJPY for my money will soon also rally, although several experts thing the opposite as the Yen is sought out for safety but I think USD will be stronger across the board in due course, especially if other market bubbles burst.  Interestingly there is a chance AUDUSD could rally strongly if metals and Oil turn back up but eventually both AUD and CAD will fall vs USD and commodities will also fall back for another leg lower as I have previously forecast with technical analysis.  Gold is the only thing that looks set to rally strongly, although some retrace may be on the cards, buy the dips.  I would not trust the Bond markets, that is the mother of all bubbles.

 

Stocks

After short term volatility and quite possibly further drops I believe the US large caps are still on course to make fresh all time highs and this will drag other indices back up but not to all time highs, just a strong retrace.  The two potential exceptions here are Nikkei and Dax (of STOXX EUR 600).  It is noteworthy that both of these indices fared far worse than the FTSE100 yesterday, I see that continuing, especially on the European stocks are the extent of risk/uncertainty in the EU/eurozone becomes apparent.  And the EU politicos are scared sh1tless about this, which is why Junker and his mob are pressuring for a quick Article 50 negotiation.  They will not be able to stop the clamour for other Referenda however...  Therefore I expect US and the FTSE to make a retrace pattern and then move back up as the BoE and Fed take action to prop things up, as the BoE has already said it would but the Dax is weak.  After the US shows those all time highs the big drop will be on.

 

Anyone think different?  I'd love to hear your views.

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