Many investors in the U.S. are focusing on the November elections, but we have another significant global political event in the next few weeks. The European Union Referendum, which will be held in the United Kingdom on June 23, 2016 will affect world-wide markets, and especially, the currency markets.
Voters will be asked to vote to “Remain a member of the European Union” or “Leave the European Union (Brexit).” There are strong arguments for both sides, but our research shows the "remain" camp will win in the end. And the reasons for the remain camp are strong:
- Voters will remain with the status quo, as the fear of the unknown is greater than the current restraints of being part of the EU.
- The recent visit to the U.K .by President Barack Obama gave support to the "remain" camp and has helped the pound to strengthen. Similar to the Scottish referendum held in 2015 where the "leave" camp lost, the status quo in many cases is easier than the unknown.
In the U.K. investors are able to place bets on the outcome with major Financial Booker IG.com showing "remain in EU" is favoured and currently priced at 71. A binary bet is prices between 0 and 100-- 0 meaning the event will not happen and 100 being the event does happen.
Some reading this may think a U.K. vote will not make much difference to the U.S., but it’s not just the U.K. that will be affected. If the U.K. was to vote out of the EU, it would send shock waves in the Eurozone area, and Denmark, Spain and other countries will consider similar referendums which could be the start of the collapse of the Eurozone. This collapse would send the U.S. dollar soaring, which would be a nightmare for U.S. multi-nationals doing business in the Eurozone and a stronger dollar will reduce earnings reported by U.S. companies.
How do investors profit when they are outside of the U.K. and do not have access financial spread betting? Here's some trading ideas on how to profit:
EURO/GBP – Short Euro
So far in 2016 the Euro has been gaining against the British pound (GBP). This is partly a bounce after the big fall in the Euro in 2014/2015 and of course, the uncertainty about Brexit which will most likely be resolved on June 23.
Overall the Eurozone remains weak and according to our research, it's best to be long the GBP than Euro for the rest of 2016. We started the year at around 7340, today we are at 7830, and by year-end the GBP is likely to move towards the 7340 level. That is about 6% lower for the Euro. This can be traded via an FX broker.
GBP/USD – Short US$ or buy FXB
The GBP is likely to stabilise against the USD and Cable (GBP/USD) is likely to go back to a 1.48 to 1.50 level in the coming months. An investor can look to back GBP/USD with an FX broker. There is also an Exchange Traded Fund (ETF) offered by www.currencyshares.com which allows you to be long GBP and traded under the ticker: FXB
Trading veteran Vince Stanzione has been trading for over 30 years and has produced a home-trading course at www.fintrader.net He stresses that before you try trading it's worth getting some training. He is also the New York Times bestselling author of The Millionaire Dropout published by Wiley.