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FinancialSpreads.com Warns Investors About Extreme Market Moves Due to the EU Referendum
FinancialSpreads, the UK spread betting and CFD company is warning investors about being too bullish while the EU referendum result is unknown.
With the UK's EU referendum taking place on 23 June, the financial markets seemed to be ignoring the risks and taking the latest polls as the actual referendum result.
The UK stock market has since climbed, as has the pound against the dollar.
According to Adam Jepsen, the founder of Financial Spreads, the EU referendum is an unprecedented event and investors might want to be cautious because the result is far from clear.
"One might expect the markets to be cautious and taking money off the table. That certainly wasn't the case with this week's trading".
"The Remain campaign had a positive weekend but the vote is far from a foregone conclusion:
- The polls are still fairly well balanced albeit favouring Remain
- The "don't knows" often account for 5-15% of vote and could easily shift the balance
- It's plausible that Leave campaigners are more motivated and therefore more likely to vote
- Younger voters seem to favour Europe while older voters are more inclined to Leave, yet older voters are more likely to actually cast a vote
- A number of newspapers are firmly in the Leave camp and they could still influence some Remain voters as well as those who are undecided
The current bullish market sentiment could well be misguided."
- - - Potential Market Moves - - -
Financial Spreads have also written to clients and warned them about the hazards of trading the referendum due to the possibility of some extreme volatility around the event.
According to Jepsen "With the markets in seemingly bullish mode that could make the volatility even more severe should the Leavers win the vote.
"If so, while unlikely, it would not be a complete surprise to see extreme moves such as:
"GBP/USD could drop 15% to around $1.25 but perhaps not $1.10 as some have predicted.
"Having said that, George Soros, has come out and said that if there is a Brexit then GBP/USD could drop more than 20% and fall below $1.15.
"To give the scale of this move a little perspective, when the UK left the Exchange Rate Mechanism in September 1992, the biggest single day drop for GBP/USD was about 4.5%. The pair dropped about 11% over the course of the month.
"EUR/GBP could move 5% higher and that would still be a very big move but it won't be on the scale of GBP/USD. This is because a vote to leave would hurt both sterling and the euro
"The FTSE 100 could drop 400 points as investors move their money into safe havens.
"The DAX 30, which is normally more volatile than the FTSE 100, could also be hit. The DAX 30 could drop 600 or 700 points.
"This kind of market action is tempting for investors but it also makes it difficult to trade profitably."
- - - About Financial Spreads - - -
https://www.financialspreads.com offers more than 1,000 spread betting and CFD markets which cover a broad range of stock indices, global shares, FX and commodities.
Forex markets, including GBP/USD, EUR/GBP and EUR/USD are open 24 hours a day from Sunday evening through to Friday evening.
Financial Spreads is a trading name of Clear Investor Ltd. which is an appointed representative of FINSA Europe Ltd., company no: 07073413. FINSA Europe Ltd. is authorised and regulated by the Financial Conduct Authority, registered number 525164.
Registered Address: Office 701, Tower Bridge Business Centre, 46-48 East Smithfield, London E1W 1AW, UK.