BLOG

Crunch time: Brexit or Bremain?

Posted by Fullerton Markets on June 20, 2016 at 2:00 PM


This week, the UK will hold a historic referendum on Thursday 23rd June where voters will answer Yes or No to the question “Should the United Kingdom remain a member of the European Union or leave the European Union?”

Why is a referendum being held?
Prime Minister David Cameron promised to hold one if he won the 2015 general election, in response to growing calls from his own Conservative Members of Parliament (MPs) and the UK Independence Party (UKIP), who argued that Britain had not had a say since 1975, when it voted to stay in the European Union (EU) in a referendum. David Cameron has mentioned: “It is time for the British people to have their say. It is time to settle this European question in British politics.”

Voters include British, Irish and Commonwealth citizens over 18 who are resident in the UK, along with UK nationals living abroad who have been on the electoral register in the UK in the past 15 years. 

Early this year, David Cameron sought an agreement with other European Union leaders to change the terms of Britain’s membership. He says the deal, which will take effect immediately if the UK votes to remain in the EU, gives Britain “special” status within the 28 nation club, and will help sort out some of the things British people say they don’t like about the EU, such as high levels of immigration and giving up the ability to run our own affairs.

According to the latest opinion polls, the British public are fairly evenly split on the vote.

The UK Independence Party and about half of the Conservative MPs are in favour of the UK leaving the EU. This is mainly because they believe Britain is being held back by the EU, which they say imposes too many rules on business and charges billions of pounds a year in membership fees for little in return. They also want Britain to take back full control of its borders and reduce the number of people coming to the UK to live and work.

On the other hand, Prime Minister David Cameron himself wants Britain to remain in the EU, including sixteen members of his cabinet. Other EU nations like France and Germany also prefer Britain to remain. Those campaigning for Britain to stay in the EU say it gets a big boost from membership – it makes selling things to other EU countries easier and, they argue, the flow of immigrants, most of whom are young and keen to work, fuels economic growth and helps pay for public services.

Big businesses – with a few exceptions – tend to be in favour of Britain staying in the EU as well. Vote count will start when polls close at 10pm GMT on Thursday 23rd June at 382 local centres all around the UK.

The pound has been bounced around by opinion polls throughout the referendum campaign, dropping as much as 6.1 percent year-to-date at the end of February, before briefly wiping out its 2016 decline twice last month as surveys suggested the “Remain” camp was gaining ground.

It reached a more than two-month low last week when five polls in 24 hours showed the “Leave” camp pulling ahead. Howeever, the downtrend has since reversed with GBP/USD tuching a 2-week high of 1.4621.

Here’s how the markets will react

Brexit:

  • GBP could test multi-year lows of 1.3503 (January 2009)
  • Safe havens like CHF, USD, JPY and Gold will surge
  • Oil will drop

Bremain:

  • GBP could rally anywhere between 1-3%
  • Safe haven currencies like CHF, USD, JPY and Gold will unwind and sell-off
  • Oil will trend higher

 

Our Picks

GBP/USD – This pair would heavily track the results of the UK referendum on 23rd June. Assuming a result of “Bremain”, GBP/USD could easily test the psychological barrier of 1.50 and break through – a level not since December 2015.

1-gbpusd.png

 

Gold (XAU/USD) – Gold touched a 10-month high of 1315.57 last week due to increasing uncertainty around the “Brexit” issue. Assuming a result of “Bremain”, Gold will drop and possibly break the support level of 1263.49.

2-xauusd.png

 

Top News This Week

Europe: German ZEW Economic Sentiment. Tuesday 21st June, 5pm.

We expect figures to come in at 5.0 (previous figure was 6.4).

Canada: Core Retail Sales m/m. Wednesday 22nd June, 8.30pm.

We expect figures to come in at 0.1% (previous figure was -0.3%).

USA: Core Durable Goods Orders m/m. Friday 24th June, 8.30pm.

We expect figures to come in at 0.1% (previous figure was 0.5%).

 

 

Fullerton Markets Research Team

Your Committed Trading Partner