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Good Risks and Bad Risks

Good Risks and Bad Risks

As of early Thursday afternoon the GBP The GBP The GBP is the official currency of the United Kingdom. The GBP is a major currency and currently ra... More is the official currency of the United Kingdom. The GBP is a major currency and currently ra... More continues to sustain the gains that it has made the past five days of trading. Sterling The GBP is the official currency of the United Kingdom. The GBP is a major currency and currently ra... More has not given back much of its gains and traders seem intent on adding positions against the USD The USD The USD is the official currency of the United States of America. It is the largest reserve currency... More is the official currency of the United States of America. It is the largest reserve currency... More . The Brexit vote is fully underway in the U.K. and while many pundits believe that a decision will be made to remain in the European Union, the official results of the referendum will not be known until at least early Friday. The strong move by the GBP indicates that financial houses and large investors are continuing to re-position themselves for the days ahead when the U.K. functions once again as a full European partner – albeit with a different currency – without any storm clouds shadowing the landscape. Of course they could be wrong, but it is all about risk appetite at this point.

Anxious trading is to be expected in the coming hours as announcements are made regarding the Brexit vote. However global Indices, stocks, FX pairs are all exhibiting a taste for risk. The question that some investors will ask is how much of the perceived values for the GBP and EUR The EUR The EUR is the official currency of the European Union. Presently 19 out of the 28 collective  nati... More is the official currency of the European Union. Presently 19 out of the 28 collective  nati... More have been factored into the markets already for tomorrow. Meaning that many trades have already been placed with the thought in mind that the Brexit vote will produce a decision which says – remain.

And then the most important question will follow – what is next? What are investors going to focus on if the U.K. has decided to stay in the European Union? While the GBP is an interesting story – and an alluring trade opportunity for those who believe a good deal of value has been taken off of Sterling The GBP is the official currency of the United Kingdom. The GBP is a major currency and currently ra... More and the Single Currency The EUR is the official currency of the European Union. Presently 19 out of the 28 collective  nati... More in the past five months and that they stand a good chance of climbing back to what its perceived value should be – it must be noted that the investing universe does not think of the U.K. as it centre.  Pointing out that while the GBP and EUR may benefit from a ‘remain’ result in the Brexit that other global financial assets Can be stocks, commodities, indexes or Forex currency pairs. More may not see a prolonged bounce.

It is likely that investors will soon begin to gravitate to known forces in the investing sphere again, meaning the U.S. Federal Reserve The Federal Reserve The Federal Reserve The Federal Reserve is the Central Bank of the United States of America and sets the monetary policy When used by traders and investors monetary policy When used by traders and investors monetary policy When used by traders and investors monetary policy usually refers to Central Bank policy concerning ... More usually refers to Central Bank policy concerning ... More usually refers to Central Bank policy concerning ... More ... More is the Central Bank of the United States of America and sets the monetary policy... More is the Central Bank of the United States of America and sets the monetary policy... More will begin to get a lot of attention and the China economic situation also might begin to get plenty of notice. Observations coming from both of these large economic forces may not be pleasant for global investors. Janet Yellen spent Tuesday and Wednesday in Washington, D.C. discussing current Fed The Federal Reserve is the Central Bank of the United States of America and sets the monetary policy... More monetary policy and her comments were did not offer glimmering hope. Instead Yellen frankly admitted that the U.S. economy is not achieving the growth that had been projected only a year ago. The Fed The Federal Reserve is the Central Bank of the United States of America and sets the monetary policy... More Chairwoman also discussed the notion that slow economic growth may in fact be the new normal for mature economies. Critics of the Fed will not be at all pleased by Yellen’s remarks and what appears to be a paralysis of policy that is spreading throughout the Central Bank.

Weekly Unemployment Claims will be released soon today and looming up ahead for next Friday are the Non-Farm Employment Change numbers. Though it must be said the Fed Chairwoman readily admitted that she is more concerned about slow growth than she is about the jobless situation in the States, which while not great regarding ‘actual full employment and job opportunities’ is less of a worry than growth and productivity. The fact is that the Fed has begun to look like it has run out of ammunition and may actually have to let market forces (capitalism) actually be practiced.

Also investors will be focused on China, which is exhibiting many problems with slowing growth, lackluster manufacturing data, falling investment capital and troubling drops in purchases for commodities that simply have not returned to levels that would be considered quality demand. The bad economic data in China highlights that orders for exports and imports via the Asian giant continue to show that the global economy is slumping.

The GBP and EUR could find themselves with an opportunity to gain more in the coming weeks not because they merit a vast amount of confidence, but because they both have lost some value based on fears that a Brexit result to leave the European Union would have caused massive bedlam.

Now let’s remember the Brexit voting has not been concluded. While we believe the U.K. will decide to remain inside the European Union officially by this time tomorrow, there are no guarantees.  Traders may want to increase their risk appetite today, but they have to also acknowledge that if they are wrong they could suffer losses too.

If the U.K. does decide to stay in the E.U. it will not be a great surprise and while the GBP may have room to climb in the coming weeks, investors will be faced with troubling prospects from the U.S. and China if things do not improve among the two economic giants. This summer may entice investors with the possibility of values that are below historical norms for the GBP and EUR, but they may also find that worries about the global economy mean that commodities, Indices and stocks will find a difficult road ahead and that the risk appetite that is spawned because of optimism via a ‘good’ Brexit result may actually work against some in other assets Can be stocks, commodities, indexes or Forex currency pairs. More .