The Snowflake Currency: The Pound

The Snowflake Currency: The Pound
The Snowflake Currency


The Snowflake Currency

If “Snowflake Generation” is a term used to describe today’s teens and young adults as being “overly precious, taking offence at the slightest slight and being generally less resilient than previous generations” then… I’d like to suggest that the pound is becoming the “Snowflake Currency”.

(Of course, we are putting the blame squarely on the currency itself and not all the idiots like us who trade many a kneejerk reaction in the forex markets).

October has been a rather choppy month with GBP/USD ranging from around $1.34 to almost touching $1.30 before moving back above $1.33.

Then of course you have yesterday’s 1.7¢ mood swing with a low around $1.312 and a high around $1.329.

Flakey October 2017 Chart


Why Has Sterling Become the Snowflake Currency?

The obvious answer is Brexit or rather the lack of clarity over Brexit.

The UK referendum took place on 23 June 2016 and the divorce is still being negotiated 16 months later.

With such protracted proceedings it’s no wonder that the youngest child, i.e. sterling, is less resilient to the latest rumour, conjecture or headline.

The pound’s big brother, the euro, has proven largely resilient to Brexit shenanigans.


Hissy Fit

Yesterday’s mood swings came about as Michel Barnier, the EU’s chief Brexit negotiator, admitted that the Brexit talks were currently deadlocked.

The pound crumbed.

Not long after that, Handelsblatt, a German business newspaper, reported that the EU is willing to offer the UK a 2 year transitional deal whereby the UK would meet its financial obligations but give up its voting rights.

The pound wiped away its tears and thought that was good news (albeit clearly worse than the existing UK-EU deal).


What Next for the Snowflake?

It’s not going to melt but it will continue to be overly offended at the slightest insult, or hard truth, for years…

Years?

Yes, years. And that’s ignoring my personal opinion of Brexit and my view that politicians are too short-term-ist to be able to come up with a workable and pragmatic solution.

More importantly, as mentioned above, the divorce is still being discussed 16 months after the vote and we haven’t even begun to negotiate a possible 2 year transition period.

trending_upNote: I’m a big buyer at 2 years.

Of course, it doesn’t help that the UK doesn’t really know what it wants. It’s very difficult to negotiate when you don’t know what you want.

It’s very difficult to negotiate when you don’t know what the UK actually voted for.

If the UK clearly voted to exit the single market you’d just start there. Simple. Alas we didn’t have a referendum with clear options.

(Side note – George Osborne didn’t help by predicting the UK would experience Great Depression II if it Brexit’ed. Tit.)

Either way, the pound, and therefore, GBP/USD, will be battered around for years.


How to Spread Bet on This Mess?

To me there are a number of options:

  • ac_unitOption 1) Don’t spread bet on GBP/USD until Brexit is settled… that’s a long time but yesterday’s news based moves prove how volatile the market can be.

    The 5 minute chart below shows how agile you’d need to be. Trading such moves is impossible for most of us.
Toys out of the pram…

  • ac_unitOption 2) Spread bet with very wide stop loss orders and with the smallest possible stakes.

    This way you’ll partially protect your downside and be ‘more likely’ to be able to withstand rumour based reactions.

    Spread betting is high risk though… with this strategy you are just adding ‘risk’ to that ‘high risk’ and that doesn’t seem wise.

  • ac_unitOption 3) Spread bet with tight stop loss orders, the smallest possible stakes and Limit orders at levels that are 2? 3? 4? 5? times as big as your Stop distance.

    This way you’ll partially protect your downside and you’ll lose a lot of trades but those losses should be small compared to the profitable trades.

    Easier said than done. You may just lose a lot of small trades.

    Again, this seems like option 2, i.e. adding risk to a high risk form of trading. Unwise.

  • ac_unitOption 4) Try to trade when the formal Brexit negotiations are not being held. I’d list a timetable on www.spreadbetmagazine.com but I image that any such timetable is subject to change.

    Of course, plenty of rumours can still emerge between the negotiations but the pound might be less sensitive at those points.

    At the same time, politicians are slightly less likely to be briefing against each other (on the subject of Brexit).

No Trading?

Option 1 may be the wise way forward… it you must trade, use very small stakes so at least you’ll lose less.

No trading? Yes, no trading on GBP/USD. Relax, there are plenty of other markets to lose money on.

… And I’ll probably forget my own advice anyway…


AuthorAlex Turner

Senior Editor, SpreadBetMagazine

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