EU got that lovin feeling for the pound

They think it’s all over, in less than 12 hours it will be. The polls have opened, people are keen to stress on Facebook that they are voting come rain or shine. Perhaps the rain, thunder, and lightening are pathetic fallacy that could hold significance if either side win.

Even though we all know that polls can be rubbish, the markets seem quite happy that the Remain camp has done enough to win. The pound has hit its highest level of 2016 and is flirting with life above 1.48 versus the USD. It is also higher across the board, most notably against the safe-havens, including the yen and the Swissie.

What are City Index traders doing?

After months of looking at polls, hearing the rhetoric of both sides and listening to questionable campaign tactics, we have decided to look at what our clients are doing to try and gauge what market sentiment is like ahead of tomorrow’s results.

Below, we show interest in our biggest markets as of 1015am today:

EUR/GBP: 51% short
GBP/USD: 62% short
GBP/JPY: 77% long
FTSE 100: 51% short
German Dax: 52% long

Trading in the indices seems fairly balanced between sellers and buyers at City Index right now. This reflects a calm that has descended over UK and European markets now that voting has opened. We expect markets to stay fairly neutral until we get the final outcome sometime tomorrow morning.

In contrast, City Index clients seem happy to own the pound with only one day to go before voting, especially against the yen and the euro. This suggests that the activity of City Index clients is reflective of recent opinion polls that are pointing to a win for the Remain camp. Right now our clients feel comfortable to own riskier currencies like the pound, in favour of safe havens like the yen.

Interestingly, our clients have sold the pound versus the US dollar today. We don’t think that this is the start of a new trend; instead we think that it reflects profit taking after a large move to the upside in GBP/USD in recent days. It could also be reflective of “buy the rumour, sell the fact” behaviour that is so typical of the market, and which could limit GBP upside even if the Remain camp emerges victorious.

We conclude, with a final point about the contrasting fortunes of the physical and speculative GBP markets. It looks like there is not as much confidence in a vote for Remain from the physical market, there were queues outside money exchanges across the UK on Thursday as holiday makers tried to sell their pounds ahead of the vote. This is a reminder that the speculative market could be running away with itself before even one vote has been counted.

Kathleen Brooks is currently out on maternity leave, but has decided the EU referendum is far too exciting to miss, so she will be available for comments and broadcast slots over the next few weeks. If you’d like to hear more please contact Alex Nekrassov or David Leslie at New Century Media on: +44 (0)20 7930 8033.