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The Brexit Vote and the Markets

By: Clive Maund

 -- Published: Thursday, 23 June 2016 | Print  | Disqus 

With the Brexit vote imminent we can expect to see big volatility in markets immediately following it, and possibly even before it, if the market thinks it has got wind of the outcome ahead of the final count. If Britain votes to leave the European Union, the presumption is that the euro will drop hard, because this would be a big prominent nail in the coffin of the failing Union, and because the dollar index is about 57% comprised of the euro, we can expect it to soar. If Britain votes to stay in, the outcome is less clear, since Britain staying in will not solve the mounting problems of the EU.

The European Union is now doomed to fail and eventually break up. The reason for this is that its competitiveness in world markets has been severely compromised and lamed by restrictive and suffocating legislation and tariffs etc, created by a vast unelected and unaccountable overclass of bureaucrats who populate various citadels in Brussels, Strasbourg and other places like Luxembourg. In addition to helping themselves to taxpayers money on a staggering scale, they spend their time dreaming up thousands of idiotic rules and regulations that are impoverishing their citizens and strangling the life out of businesses. They buy influence and support with a massive sophisticated network of bribes. These parasites are literally destroying Europe, an example of which is the incredible youth unemployment of recent years, which reaches up to 50% amongst young people in places like Italy and Spain – they need to be deposed, and eventually, if they won’t go voluntarily, they will be removed by force. If Britain does vote to leave, then other disenchanted countries can be expected to follow suit in time, and this rotten self-serving organization will slowly lose its power base. If Britain stays, then increasing polarization and the rise of the extreme right can be expected to get the job done. It is a sad indictment of the ignorance and stupidity of a large slice of the British population (and I say this as a Brit myself), that even after all that has been foisted on them by the EU, almost half of them may vote in favor of Britain remaining within this Union. If you really want to know what the EU is all about, watch Brexit: The Movie, it’s rather long but well worth watching. The only flaw in this video is that it paints a picture of a Britain out of the EU as a flourishing democracy, when in reality it will continue to be burdened by a bungling overclass who control both main political parties, the Conservative and Labor parties, just as the two main parties in the US are controlled by the same plutocrats – democracy is an illusion, that is pedaled to the ignorant masses who are in reality living in a virtual dictatorship without realizing it. Britain has been severely mismanaged in recent years and while leaving the EU would be a step in the right direction, it won’t be a panacea for its severe problems.

A wild card during these uncertain times is Europe deliberately setting out to provoke Russia at Washington’s bidding by imposing sanctions on it, permitting the stationing of missile batteries along its borders and staging military exercises etc. European leaders need to remember that Russia is a lot closer to Europe than the US, and pushed to the limit or beyond, Russia has the capacity to turn most of the citizens of Europe into pieces of smoking charcoal. You would think that they would have learnt the lessons of World Wars 1 and 2, but sadly they have not and seem hell bent on inviting catastrophe. The military-industrial complex and the Neocons safely nestled in their bunkers in Colorado and Nevada might find this all very entertaining, but the citizens of Europe are the ones who are going to pay the biggest price if things get out of hand.

The focus of this article is not a geopolitical rant, but rather to consider why the dollar is likely to rally going forward, and look at a way or ways to profit from it. As noted above, if Britain votes to leave the EU, the writing will be on the wall for this doomed organization and it will disintegrate faster than if Britain votes to stay in. The euro should therefore tumble and the dollar in consequence rally. If Britain votes to stay in, the euro will probably stage a relief rally, but it is likely to be short-lived, because of the ongoing deepening crisis within the EU, so the dollar should turn up again after an initial drop, with the dead-end desperation of negative interest rates in Europe helping to sluice money out of the euro and into the dollar.

While it is impossible to determine the outcome of the Brexit vote in advance, we can at least attempt to draw some conclusions from market statistics. As we will see they suggest that the dollar is more likely to rally after the vote than drop.

On the 3-year chart for the US dollar index we can see that it has stabilized above strong support towards the lower boundary of a giant rectangular trading range, with a potential base pattern forming in recent months.

On its 6-month chart it looks like the dollar index may be working on completing the Right Shoulder of a Head-and-Shoulders bottom. If so, a sizeable rally is brewing.

The latest US dollar Hedgers chart makes for interesting viewing. This chart shows that Hedgers’ positions have been steadily improving since the dollar peak over a year ago, following the strong runup, and they are now closing in on being outright bullish – and we should note that the dollar doesn’t have to wait for that to happen to start rallying.

Click on chart to popup a larger clearer version.

Chart courtesy of

An important factor suggesting that the dollar is set to advance is the latest gold COT, whose readings are at record extremes, which makes a decline in the gold price very likely soon, and clearly that is likely to coincide with a dollar rally.

Click on chart to popup a larger clearer version.

Apart from the failing euro, why should the dollar rally after suffering so much abuse at the hands of the Fed and big banks in recent years? – important reasons are not hard to find. In the first place, the Fed may have been abusing the dollar, but most of the rest of the world has now followed suit, with many Central Banks around the world striving to outdo the Fed. The European Union and Japan in particular have evolved into masters of outdoing the Fed. Another big reason is that global markets are now in the late bubble stage, and this includes bonds, stocks and Real Estate, and are increasingly unstable, so that various “black swan” events could trigger a general crash, like the Fed stubbornly raising rates later this year in the face of an already crumbling economy. Finally, like it or not, the US dollar remains the global reserve currency, and US elites intend to keep in that way, which is why Russia, which has been teaming up with China to circumvent using the dollar, is finding itself under an economic and military siege, subjected to sanctions on trumped up charges, and being encircled by military hardware.

If the dollar is set to rally then dollar bull ETFs like the two shown below should rally. The gains in these will not be big as they are not leveraged, but at least they will do more than preserve capital, and if markets crash they will prove to be a good bolthole.

If the dollar rallies after the vote, then commodities will drop, and gold, silver and oil look particularly vulnerable over an intermediate timeframe as we have just observed in the latest Gold Market update and Silver Market update. On the 6-month chart for Light Crude we can see that it has already broken down a bearish Rising Wedge uptrend that lasted from February, and looks set to drop away.

If Britain votes to leave the EU, the elites, who control global stockmarkets with their vast wealth, will be roiled and we can expect a big drop in world markets to occur, which the US market is certainly in position for, although we should be clear that this could break either way. Having said that the S&P500 index chart shown below does present a dangerous picture – from this position it could easily crash the support shown and plunge…

A couple of bearish looking candles with rather large “upper shadows” have appeared on the S&P500 index chart in recent days, two “shooting stars”. Although not conclusive evidence these usually lead to a drop…

Whichever way the vote goes, one thing is for sure, and that is that we are going to see some wild swings in markets once the results are known.

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 -- Published: Thursday, 23 June 2016 | E-Mail  | Print  | Source:

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