The recent terror attack in Brussels killed at least 31 and injured more than 180 people. This event, after the attacks in Paris last year, is raising the fears of terrorism all over Europe once again. This fear is providing ammunition for those in the UK who are campaigning against European membership, and of their apparent inability to cope with refugees and terrorist activities.
So maybe this attack can influence the referendum regarding whether or not the UK will stay in the European Union which takes place on June 23rd 2016?
In the forex market we have seen a huge drop in the GPBUSD, which was the most heavily influenced currency pair after the terrorist attack. We cannot say for sure that this move just happened because of the news, but there is a huge probability that the terrorist attack could be the reason why. The market is fearing an exit of Britain because nobody can really forecast what a Brexit means for the UK economy. Here is one scenario of what might could happen, and how we can use it for our trading.
With Britain leaving the EU they would lose access to the single market. There could be many more costs incurred because of an interruption in the production chain, or tolls they would have to pay for importing into the EU – especially for exporting companies like the automobile industry. These expenses and the uncertainty of how British companies could handle these issues, could lead to a lowering of their credit rating by rating agencies… which in turn would lead to higher interest rates for loans, again leading to more costs for the companies. This scenario might slow down the growth of the British economy, and would probably weaken the Pound against the Euro and US Dollar. The stocks of British companies in the FTSE could also be expected to move lower.
For us traders, this referendum could be a good chance to make some money. Maybe we would favor short positions for UK stocks and the GBP as many analysts have the opinion that a Brexit would damage the UK economy. Sure, there are others who say it would be a good chance for the UK to raise their GDP over time but, as we have seen very recently, with heightened expectations that UK is leaving the EU, the GBP drops down.
With technical analysis we do not have to choose one side or another. We do not even have to wait for the referendum to occur if rumors are already moving the market. This is how we, as technical traders, use the news. We know that something might happen but we will stand at the sideline watching how the price moves and jump on board at the time when we see good momentum in the markets. With a good risk management in place there will be plenty of chances in the forex and stock market to make some good money. So be focused, be patient, be a hunter!