We only have 72 days until the EU referendum on June 23 and the mixed messages are already coming in thick and fast.

David Cameron recently secured a deal to give the U.K. a special status within the EU. Will this be enough to keep the U.K. in the EU? What does the future hold?

Before we analyse the pro’s and con’s let’s have a quick history lesson and remind ourselves how the European Union formed and what has gone so horribly wrong, how is it possible, Mr. Churchill’s vision for the United States of Europe transpires into daily newspaper polls for Brexit.

The Founding Fathers of the EU inspired the creation of the European Union we live in today. Without their energy and motivation we would not be living in the sphere of peace and stability that we take for granted (yes you heard right! Take for granted). From resistance fighters to lawyers, the founding fathers were a diverse group of people who held the same ideals: a peaceful, united and prosperous Europe.

1) 1945 – 1959 A peaceful Europe – the beginnings of cooperation
The European Economic Community (EEC); is set up with the aim of ending the frequent and bloody wars between neighbours, which culminated in the Second World War. The six founders are Belgium, France, Germany, Italy, Luxembourg and the Netherlands.

2) 1960 – 1969 The ‘Swinging Sixties’ – a period of economic growth
It is a good period for the economy, helped by the fact that EEC countries stop charging custom duties when they trade with each other. They also agree joint control over food production, so that everybody now has enough to eat – and soon there is even surplus agricultural produce.

3) 1970 – 1979 A growing Community – UK joins the EEC
Denmark, Ireland and the United Kingdom join the EEC on 1 January 1973, raising the number of member states to nine. The EU regional policy starts to transfer huge sums to create jobs and infrastructure in poorer areas. The European Parliament increases its influence in EEC affairs and in 1979 all citizens can, for the first time, elect their members directly.

4) 1980 – 1989 – The changing face of Europe – the fall of the Berlin Wall
In 1981, Greece becomes the 10th member of the EEC and Spain and Portugal follow five years later. In 1986 the Single European Act is signed. This is aimed at sorting out the problems with the free-flow of trade across EEC borders and thus creates the ‘Single Market’. The Berlin Wall is pulled down and the border between East and West Germany is opened for the first time in 28 years, this leads to the reunification of Germany when both East and West Germany are united in October 1990.

5) 1990 – 1999 Four freedoms: movement of goods, services, people and money & Schengen
With the collapse of communism across central and Eastern Europe, Europeans become closer neighbours. In 1993, the Single Market is completed with the ‘four freedoms’: movement of goods, services, people, and money.
The European Union (EU) was established under its current name in 1993, following the Maastricht Treaty.
In 1995, the EU gains three more new members, Austria, Finland, and Sweden. A small village in Luxembourg gives its name to the ‘Schengen’ agreements that gradually allow people to travel without having their passports checked at the borders.

Millions of young people study in other countries with EU support. Communication is made easier as more and more people start using mobile phones and the internet.

6) 2000 – 2009 EURO currency introduced
The Euro is the new currency for many Europeans.

11 September 2001 becomes synonymous with the ‘War on Terror’.

EU countries begin to work much more closely together to fight crime. The political divisions between east and west Europe are finally declared healed when no fewer than 10 new countries join the EU in 2004, followed by two more in 2007.

A financial crisis hits the global economy in September 2008, leading to closer economic cooperation between EU countries.

7) 2010 – today!
The new decade starts with a severe economic crisis, but also with the hope that investments in new green and climate-friendly technologies and closer European cooperation will bring lasting growth and welfare.

What appears to be a harmonious and glorious relationship has ended in frustration, irritation and the general feeling ‘the grass is always greener’ on the other side. But, is it really! Let’s take a look at the pro’s & con’s if the UK leaves, then we’ll answer the question on all traders’ lips… how can I profit from this turmoil in the markets!

Why does the UK want to leave? Why does the UK want to stay?
UK Trading Goods & Exports

  • Without the EU, Britain,can independently pursue international trade deals with China, India, and the,US.
  • A particular issue for, Brexiters is the Central Agricultural Policy (CAP), which they see as, wasteful and expensive.
  • Nigel Farage believes,Britain could strike an agreement with the EU that is similar to Norway’s – where they have access to the EU’s single market, but are not bound by EU,agriculture, justice, or home affairs laws.
  • If possible and it can be, negotiated it’s in the UK’s interest to remain in the Single market.
EU Trading Goods & Exports

  • The EU is in a stronger position than the UK alone to negotiate trade deals with non- EU countries.
  • Some manufactures have threatened to leave the UK if it is out of the Single market.
  • The EU buys over 50 per cent of UK exports (54 per cent of goods, 40 per cent of services).
  • Over 300,000 British companies and 74 per cent of British exporters operate in other EU markets.
  • American and Asian EU firms build factories in Britain because it is in the single market.
Roaming Charges & Travel

Benefits potentially to be re-negotiated if UK operates alone.

Roaming Charges & Travel

  • EU negotiated lower mobile phone roaming charges, lower credit card fees
  • Visa-less travel across the EU.
  • EU driving license
  • Cheaper flights and proper compensation when flights are delayed or cancelled.
Freedom to work / Workers’ rights

  • Policy potentially to be re-negotiated and could be that people cannot freely travel to other EU countries, work or understand student exchanges.
  • Exit would allow the UK to ‘cherry pick’ the best global talent.
  • Take control of borders
Freedom to work / Workers’ rights

  • 4 million British people live abroad in the EU.
  • More than 14,500 UK students took part in the European Union’s Erasmus student exchange scheme in 2012-13.
  • Driving licences issued in the UK are valid throughout the EU.
  • The EU has introduced many directives which undoubtedly help British workers and protect our rights (equal opportunities, anti-discrimination laws, protection of workers).
  • Around 3.5 million British jobs are directly linked to British membership of the European Union’s single market – 1 in 10 British jobs.
 From an employer’s point of view, immigrants from the EU tend to be better educated than UK nationals – around 32 per cent have a degree, compared with 21 per cent of UK citizens. From an economic perspective, people moving over from the EU since 2000 have contributed 34 per cent more financially to the UK than they have cost us.
UK Economic costs / Foreign investments

  • Some estimates suggest the total economic cost of EU membership is around 11 per cent of our annual GDP- which makes it something like £200billion.
  • Brexiters say this money would be better spent on new British industries and scientific research.
  • Capital markets union could take years to complete, creating uncertainty in the meantime.
  • The UK is less attractive as a gateway to Europe, as a base for corporate HQs and as a location for investment from Europe.
EU Economic benefits

  • The EU is one of the world’s largest markets, accounting for 25 per cent of global GDP.
  • It is also our biggest trading partner. Currently, 45 per cent of the UK’s exports are to the EU, while 50 per cent of imports are from the EU.
  • Our membership of the EU makes us a more attractive destination for foreign investment. In 2012, we received around £937billion of Foreign Direct Investment (FDI), while 50 per cent of UK FDI is EU-related.
  • The pro-EU camp say this access to the EU market balances out the £200billion cost of membership.
UK Service Trades

  • UK based financial services would lose their ‘single passport’ to operate in EU markets.
  • The UK is losing influence whether it stays or not in the EU because euro member states are moving towards tighter financial and fiscal integration.
  • UK is constantly fighting EU regulation that could disadvantage the city of London.
  • Outside the EU, the UK could be successful with non EU countries.
EU Service Trades

  • UK based financial services would keep their ‘single passport’ to operate in EU markets.
  • To access EU markets, UK firms would still have to confirm to EU regulations.
  • Lots to gain from remaining in ‘single market’.
  • Euro-area institutions are trying to bring more euro-dominated trading and settlement within the Eurozone. Outside the EU, the UK would find it harder to prevent this.
UK Bureaucracy

  • Most Brexiters see the EU as an over-regulated, bureaucratic burden.
  • Leaving, they say, would allow the UK’s government and financial authorities to design a regulatory framework that is more suited to our needs.
EU Bureaucracy

  • Although processes can be lengthy, they allow the Four freedom of movements and the ability for small businesses to expand across Europe easily.
UK No seat at the table

  • The problem with basing our relationship with the EU on Norway, is that Norway, is still subject to EU laws and regulations – with the exception of CAP. This is the price it pays for access to the EU single market.
  • However, even though it follows EU rules it still doesn’t have the power to influence EU decisions.
EU seat at the table

  • If we stay in the EU, we will continue to be able to have our say on regulations and decisions.
 Immigration – Border Control in UK

  • We can have tighter border control, see breakdown of figures for 2013/14.
  • 2013: 530,000 immigrated to UK.
  • 2014: 624,000 immigrated to UK.
    • 292,000 of the 624,000 came from outside the EU (in or out of EU, we have control of this figure).
    • 251,000 of the 624,000 came from EU (if stay in EU we have no control of this figure).
  • British will no longer be able to easily study, work or reside in EU countries.
  • British will no longer be entitled to free healthcare in EU.
 Immigration – British moving to EU countries

  • Currently visit, study and work in another EU every easily.
  • Right to move, reside.
  • Right to free healthcare.
  • Right to benefits until EU law.

 

In 2013, European Commission President José Manuel Barroso urged the British people to embrace Winston Churchill’s post–World War II vision of a “United States of Europe.”

Sure, Johnson’s decision drove the British pound to a seven-year low against the dollar and ignited a selloff in British stocks. Maybe that massive plunge in the value of the pound was simply a hallucination?

The results of the referendum over Scottish independence taught us that four months can be an eon when it comes to anything political, even weeks before that vote, markets were still penalizing stocks that had exposure to Scotland.

Emerging markets have suffered a meltdown, thanks to the collapse in commodity prices and contagion from China, among other factors. Europe has been battered by a succession of problems, from Greece’s economic collapse and the banking crisis, to the current political challenge posed by the wave of refugees flooding the region. In Japan, “Abenomics” has delivered only unsteady economic growth.

There is plenty of room for things to change, 72 days is a long time and anything can happen.

So yes, there is room to make money but that doesn’t mean you should be trading on every piece of news. Uncertainty fuels fear and anxiety, some people could incur some big losses due to an inability to respond to the rapidly changing markets. As we know, the market can move up, down or sideways, the secret is using the right strategy for it to go in your favour.

Which way is best! Only the public can decide on June 23 with the historic referendum on British membership in the EU. The choices are essentially “in” or “out.”

For those in the ‘STAY IN’ camp

If Britain leaves the EU, the impact will be “seismic”, said Neil Kinnock, a former EU commissioner, this week. Brexit would be “a jump off the edge of the cliff … in which our economic stability is hugely put at risk”. The message couldn’t be clearer: leaving would be economic suicide.

And finally, the question, how can I make a profit if we stay?

STRATEGY A
Short GBP.USD
George Soros made a cool 1 billion pounds in 1992!
BUY PUT on GBP.USD
By risking only 100 dollars, you could make 50,000!

 

For those in the ‘GET OUT’ camp

Over in the Eurosceptic camp, we’re told our liberation from the tyranny of Brussels will bring us a new era of prosperity, saving billions on payments into a wasteful and corrupt EU bureaucracy, slashing immigration and restoring the country’s economic independence.

But how can I make a profit if we leave?

STRATEGY B
Buy GBP.USD
BUY CALL on GBP.USD
By risking only 100 dollars, you can make 50,000!

If you do not have a view, do both, a put and a call. You can make money whatever happens, just not as much.

 

Conclusion
Make up your own mind about whether you think the British public will vote IN or OUT. I have tried to give a balanced viewpoint, you might agree, if you disagree that’s fine too, all depends what paper you read! I am new to analysing the markets, and it’s only fair I let you make the choice which is why I’ve given two strategies. You don’t have to get it 100% right but as soon as a story like this unfolds a good trader knows how to react and turn News into Profit.
Source: BBC, The Guardian, JP Morgan, HSBC, Europa, Cambridge University

 

 

 

The analyses and strategies described are for informational purposes only and should not be considered as investment advice or an indication to the purchase and / or sale of any financial product . Any information provided should not be considered as a reliable indicator of future results and the decision to operate on the basis of these suggestions it is at the sole discretion of the reader .