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Brexit, Smexit, Market Movers have been having their way with other people’s money LONG before the vote and this is something that is NEVER going to change.

Take a look at this chart:

Go back to 1973/74 and you will notice a major dip!

This chart shows the performance of various U.K sterling based assets since 1950.

If you look a little further, you will notice that the value of savings dipped in reaction to the U.K. joining the E.U.

Since the Forex market wasn't free floating at the time this was the best way to show concern over Brentry (That is mine and I am going to copyright it although it will probably never be used again!).

Looking at the markets through a wide-angle lens, it becomes clear that no matter the asset class, the volatility, the time-period or a whole load of other drivers, markets are driven by sentiment, fear of the unknown and events that simply “do not compute”.

This is the essence of Black Swan Theory .

That goes a long way to explain the events following 23rd June. The mood of traders and the herd mentality. Imagine single traders standing up to the market on June 24 and saying “actually this may not be as bad for the U.K. as you all think and in any event if it is, it will be equally as bad for the Eurozone”.

That wouldn’t have stopped the herd in its tracks but it serves to highlight the difference between market reaction to the vote and the trigger of Article 50.

Theresa May was incredibly bullish during her statement, Donald Tusk appeared to relish root canal treatment over his having to confirm he had received the letter. He looked like he had just received his A level results and realized that he would be going to any college let alone Oxbridge (or an Ivy League school for our American friends).

Volatility has been severely dampened by more than ample liquidity since banks decided that they do not wish to compete with leaner, meaner and, frankly, cleverer fintech firms. It is not just a niche business that banks have found, it’s far more than that. Using their unique position to almost control flow is clever. When they turn off the spigot when faced with a market that is all one way i.e. searching for bids on June 24. The effect can be devastating. It has been amply demonstrated since 2008 that the global banks are too big to fail but they won’t stand in front of a freight train. That is the job of the Central Banks.

To continue the nostalgic glance into this old pigs memoirs, remember 1992!

The Bank of England was not only standing in front of the freight train, it was determined it should not pass. The Chancellor, Norman Lamont had spent billions from the U.K.’s foreign currency reserves, raised base rate to 12% then 15% and still the train kept coming.

Official documents released in 2005 showed that Lamont spent £3.6bn in a wild night at the FX casino. Relatively small beer by today’s standards, but remember that that £3.6bn would be close to £120bn today.

The train was, apparently being driven by famed investor, George Soros, and he was determined to take the train “over a cliff”. I know, since I was on the night shift, just how incredible the battle of wills was.

The low point for Sterling in the ERM was 2.95 against the Deutschmark and when the dam broke I was filling client buy orders at 2.90 then 2.85, then 2.80, all the way down to 2.65.

The stories of that night have long passed into legend but today’s events are no less spectacular but, thankfully, rare.

So, when trading FX it pays to remember “the trend is your friend (obviously until it turns as all markets do!)”, no matter who or what is on the other side of the trade!

Brexit, Smexit, Market Movers have been having their way with other people’s money LONG before the vote and this is something that is NEVER going to change.

Take a look at this chart:

Go back to 1973/74 and you will notice a major dip!

This chart shows the performance of various U.K sterling based assets since 1950.

If you look a little further, you will notice that the value of savings dipped in reaction to the U.K. joining the E.U.

Since the Forex market wasn't free floating at the time this was the best way to show concern over Brentry (That is mine and I am going to copyright it although it will probably never be used again!).

Looking at the markets through a wide-angle lens, it becomes clear that no matter the asset class, the volatility, the time-period or a whole load of other drivers, markets are driven by sentiment, fear of the unknown and events that simply “do not compute”.

This is the essence of Black Swan Theory .

That goes a long way to explain the events following 23rd June. The mood of traders and the herd mentality. Imagine single traders standing up to the market on June 24 and saying “actually this may not be as bad for the U.K. as you all think and in any event if it is, it will be equally as bad for the Eurozone”.

That wouldn’t have stopped the herd in its tracks but it serves to highlight the difference between market reaction to the vote and the trigger of Article 50.

Theresa May was incredibly bullish during her statement, Donald Tusk appeared to relish root canal treatment over his having to confirm he had received the letter. He looked like he had just received his A level results and realized that he would be going to any college let alone Oxbridge (or an Ivy League school for our American friends).

Volatility has been severely dampened by more than ample liquidity since banks decided that they do not wish to compete with leaner, meaner and, frankly, cleverer fintech firms. It is not just a niche business that banks have found, it’s far more than that. Using their unique position to almost control flow is clever. When they turn off the spigot when faced with a market that is all one way i.e. searching for bids on June 24. The effect can be devastating. It has been amply demonstrated since 2008 that the global banks are too big to fail but they won’t stand in front of a freight train. That is the job of the Central Banks.

To continue the nostalgic glance into this old pigs memoirs, remember 1992!

The Bank of England was not only standing in front of the freight train, it was determined it should not pass. The Chancellor, Norman Lamont had spent billions from the U.K.’s foreign currency reserves, raised base rate to 12% then 15% and still the train kept coming.

Official documents released in 2005 showed that Lamont spent £3.6bn in a wild night at the FX casino. Relatively small beer by today’s standards, but remember that that £3.6bn would be close to £120bn today.

The train was, apparently being driven by famed investor, George Soros, and he was determined to take the train “over a cliff”. I know, since I was on the night shift, just how incredible the battle of wills was.

The low point for Sterling in the ERM was 2.95 against the Deutschmark and when the dam broke I was filling client buy orders at 2.90 then 2.85, then 2.80, all the way down to 2.65.

The stories of that night have long passed into legend but today’s events are no less spectacular but, thankfully, rare.

So, when trading FX it pays to remember “the trend is your friend (obviously until it turns as all markets do!)”, no matter who or what is on the other side of the trade!

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