Brexit Impact on Global Markets

Brexit Impact on
Global Markets

MetaTrader 4 | Forex | Indices | Commodities | Binary Options | © 2016 GO Markets All Rights Reserved
Before Brexit
» Many believed that Brexit would never eventuate
» Opinion polls and analysis led many to think that the UK would vote to stay
with Europe
» Heavy campaigning from both sides
» Late polls showing ‘Bremain’ gaining ground

Impact of Brexit on global markets

Brexit’s short-term impact on markets
» Lack of liquidity as traders stayed away from the markets
» High volatility as news tend to be exaggerated
» Tendency of market to be volatile around high-impact events

Short-term trading strategy

Standard Deviation
» The white dotted circles over the red line, show the periods where market
volatility was high.
» Once the red line turns upwards (a sign of increasing volatility) it stays in
that upward position for some time before it heads downward again.
» The orange line measures the daily changes in the red line (the standard
deviation line )
» Each time there was a surge in the orange line (highlighted by small
triangles in the lower section of the chart), markets have faced a period of
high volatility (represented by an upward slope in the red line).

Using the VIX to identify periods of increased
volatility
» VIX is viewed by many as the fear index
» VIX rises when index and equity traders do not have confidence in the
short term outlook for the markets.
» Many analysts believe that VIX with value of greater than 20 is a sign
of short-term volatility and they advise caution during such times.

Correlation between S&P 500 and VIX

S&P 500 and VIX
» The green line in the chart below is the S&P500 and the red line is the
VIX
» each time VIX has gone above 20, the S&P500 has seen some serious
volatility over the following periods.
» Chart suggests a high period of volatility ahead

Brexit’s impact on bond yields

Brexit and bond yields
» In response to Brexit, investors rushed to safe haven assets such as
government bonds
» This in turn caused a severe drop in yields
» Bond prices and yields have an inverse relationship so that each time
traders rush into bonds, yields drop.

Brexit and the US Federal Reserve
» Analysts now discounting any possibility of another US Federal
Reserve rate hike this year
» Many are forecasting a rate cut before the year end
» It doesn’t look like there is anything on the horizon to inspire a burst
of energy from equities and global indices.

Post-Brexit trading strategies
» Trading strategies worth considering would be favouring:
» short-term range bound strategies,
» breakouts
» less of a focus on trending strategies

How to take advantage of the Brexit impact on
global markets?
To take advantage of the trading opportunities from the Brexit impact
on global markets, visit:
https://www.gomarkets.com.au/brexit-impact-on-global-
markets/

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Brexit Impact on Global Markets

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