"Mr. Gu, looking at the British pound's exchange rate trend, it doesn't look good!"
Noticing the British pound's weak trend, lack of rebound, and the continuous sharp decrease in net long positions, Xie Hongxing, the trading team manager at Tianhe Capital in Hong Kong City, frowned and urgently reported to Gu Chijiang.
"What's wrong?" Gu Chijiang asked anxiously.
Xie Hongxing pondered for a moment and replied, "Logically, with market news favoring the long side, the market trend should be actively upward. But the current market trend is inconsistent with our expectations, and... after the British pound exchange rate experienced a sharp correction and a fierce retreat to a support level near 1.5200 points.
According to normal logic, this position should indicate intraday profit-taking by short sellers covering their positions, and a continuous increase in long positions.
However, currently, short positions in the market are still surging, while long positions are still sharply decreasing.
This indicates that short capital in the market has not only not reduced its positions to cover but is actually increasing them, while the trend of long positions being reduced and stopped out is also continuously expanding.
Such a pattern...
If it continues, I'm worried that the British pound exchange rate will further break through the previously established consolidation range.
This would trigger a cascade of position covering and stop-loss selling among long institutions and numerous retail long investors in the market.
And once the long sentiment in the market starts to collapse and the British pound exchange rate falls below the previously formed consolidation platform, then an extreme downward trend is highly likely to erupt prematurely."
"An extreme downward trend?" Gu Chijiang was slightly taken aback and said, "That's not possible."
"From the market trend, nothing is impossible," Xie Hongxing said. "It's obvious that the long power in the market is continuously weakening, and once the British pound exchange rate breaks yesterday's market low, or even breaches the 1.5000 point mark, it will definitely trigger a collapse in long sentiment in the market."
"Didn't you say... the Bank of England is still increasing its market intervention?" Gu Chijiang said. "Coupled with the anticipated referendum results tomorrow, there's no reason for the British pound exchange rate to break downwards."
"The current news expectations and market trend are indeed divergent," Xie Hongxing said. "As for why such a market trend is occurring, I also don't quite understand, but... Mr. Gu, based on the market trend, to avoid extreme risks, I think... we should start reducing some long positions."
Upon hearing Xie Hongxing's proposed trading strategy, Gu Chijiang's brows furrowed visibly.
He sighed softly and replied, "At this current position, our entire fund's holdings are already in a floating loss state, and the British pound exchange rate has already fallen to the low point of the recent consolidation platform.
Once we reduce positions to cover and stop-loss, we are very likely to reduce at the absolute lowest point!
Also, the underlying logic for the bullish expectation direction has not significantly changed, and at the same time, the Bank of England is still increasing its market exchange rate intervention.
According to previous market historical trend predictions...
The British pound exchange rate doesn't have a clear impetus to break through the consolidation platform for a downward move!
Overall, although stopping losses and reducing positions at this point can avoid the risk of an extreme British pound exchange rate movement, it will also most likely miss the opportunity for the British pound exchange rate to rebound quickly and counter-attack towards the high point of the consolidation platform."
Of course, in addition to the reasons Gu Chijiang mentioned.
Another major reason was that he felt the fund's holdings were currently in a floating loss state, and the underlying logic for going long was still there, which made him somewhat unwilling to stop-loss and cover his positions.
"But if we don't reduce positions at this point and keep sufficient margin, what if the British pound exchange rate quickly breaks through the 1.5000 point support, triggering a cascade of position covering by massive long positions in the market, thereby forming an extreme downward breakthrough trend? Then we would become increasingly passive," Xie Hongxing said. "The key is that the British pound exchange rate is at a low point in the consolidation platform, yet net long positions in the market are still sharply decreasing, which gives me a very bad feeling."
"Let's wait and see..." Gu Chijiang hesitated for a while and said, "Although short power in the market is increasing, it hasn't formed an overwhelming advantage. Moreover, after the British pound exchange rate opened sharply lower and fell yesterday, didn't it also quickly rebound and fully recover its losses in subsequent market trading?
I believe the Bank of England's determination to maintain the stability of the British pound exchange rate is still very strong.
And I also believe that tomorrow's referendum result will definitely be to remain in the EU, with no surprises. With the support of these two underlying logics, it's impossible for the numerous major long institutions in the market not to counter-attack.
Therefore, the probability of the British pound exchange rate rebounding at this position is extremely high, and the probability of maintaining a volatile consolidation trend is also extremely high.
Even if we were to reduce positions, we would have to wait for the British pound exchange rate to rebound close to the high point of the consolidation platform, under the counter-attack of other major long institutions in the market."
"But what if..." Xie Hongxing said worriedly.
Gu Chijiang waved his hand, interrupting Xie Hongxing, and said firmly, "There aren't so many 'what ifs'. At this point, we can still continue to watch and observe for a bit longer."
After speaking, he quickly connected with the instant messaging of two affiliated institutions, Huifeng Global Universe Hedge Fund and Mitsui Jiayou Investment Company, and asked Godfrey, the manager of Huifeng Global Universe Hedge Fund, which is the most well-informed about market intelligence and has the largest capital investment: "Mr. Godfrey, this morning's British pound exchange rate trend is clearly not meeting expectations. With favorable news support, it's falling instead of rising. What's your view on this trend?"
Godfrey gazed at the British pound exchange rate chart, his expression still calm, and replied, "Mr. Gu, there's no need to worry too much. In the recent British pound exchange rate movements, the Asian trading session rarely doesn't fall, but often, once trading time enters the more active European and American trading sessions, the British pound exchange rate is able to recover its losses.
This morning's decline, according to our analysis and judgment.
It was mainly caused by several major short institutions, such as Huayin International, Aberdeen Asset, Huayi Capital, taking advantage of market sentiment, concentrating funds, and jointly selling off.
But there's no doubt...
The strength of these few short institutions alone is simply not enough to break through the support level of the consolidation platform.
Nor is it enough to truly cause panic among the numerous major long institutions in the market.
My suggestion is that at this position, we can continue to increase long positions, and then after the short-term selling pressure from short forces weakens and the British pound exchange rate quickly rebounds, we can reduce the newly added long positions at lower prices. This way, through intraday trading, we can relatively lower our holding costs and avoid greater passivity."
"Mr. Godfrey, do you have any more news regarding the Bank of England?" Sato from Mitsui Jiayou Investment Company also asked at this time. "According to information from our group's investment bank's currency exchange trading center, it seems that many trading companies and investment companies holding large amounts of British pounds in underground banks and black markets worldwide are rapidly selling off their British pounds and accelerating their conversion into more liquid and recently more stable US dollars.
Although the exchange rate in black market transactions cannot be compared with the market-based exchange rate.
However, the occurrence of this situation essentially indicates that the vast majority of institutions, investors, and trading companies in the global trading market are unwilling to hold British pounds before the referendum results are out!
I am concerned that if this phenomenon continues...
It will affect the British pound exchange rate trend in the regular market and lead to more aggressive short selling and forcing out of long positions by short institutions in the market."
"Regarding the phenomenon Mr. Sato mentioned..." Godfrey took over and said, "Our institution also noticed it long ago, and we have conducted detailed analysis and discussion. Our institution believes that the occurrence of this phenomenon will not change the trend direction of the British pound exchange rate, nor will it affect the outcome of tomorrow's referendum on the 23rd.
Currently, the underlying logic and fundamental factors that can ultimately determine which direction the British pound exchange rate will break are primarily two points.
One is the outcome of tomorrow's referendum, and the other is the Bank of England's determination and strength in maintaining the exchange rate market.
Currently, regarding the outcome of tomorrow's referendum, based on preliminary vote counts, the British government's stance, and the collective long-positioning actions of numerous major European institutions, among other factors, it is basically certain that there will be no surprises in the referendum result.
And the Bank of England's determination to maintain the exchange rate market, as well as its intensity of intervention in the foreign exchange market.
According to our institution's latest intelligence.
On yesterday alone, the Bank of England injected 10 billion US dollars of foreign exchange reserves into the market, and at the same time, through various affiliated financial institutions, it added over 300,000 lots of long positions in the trading market.
This indicates that the Bank of England's determination to maintain the foreign exchange market is very strong.
As the issuing authority of the British pound, the Bank of England has many cards to play if it wants to maintain the market exchange rate of the British pound.
By analyzing these two underlying logics, we can easily conclude that the market's long expectation has fundamentally not changed.
The reason why the British pound exchange rate has been oscillating more violently in recent days.
It is merely caused by market sentiment disturbances and an increasing amount of intraday speculative capital.
Considering the ultimate direction the British pound exchange rate might break, do you think acting as an ally of the Bank of England has a higher chance of winning, or acting as an opponent of the Bank of England has a higher chance of winning?"
"Without a doubt, acting as an ally of the central bank definitely has a higher chance of winning," Gu Chijiang replied with a smile. "Mr. Godfrey truly sees the British pound exchange rate trend more clearly and analyzes it more thoroughly. Indeed... the underlying logical expectations determine the ultimate breakthrough direction. Before that, everything is just emotional disturbance, and as fund managers, we must absolutely not be swayed by emotions."
He was already unwilling to stop-loss and reduce positions at this point.
Now, after Godfrey's analysis, his confidence in continuing to hold positions was even stronger.
"But as far as I know, the Bank of England's current US dollar foreign exchange reserves are not high, are they?" Sato still had many lingering concerns. "Facing the massive selling of British pounds by countless institutions and companies in the global trade market, can the Bank of England really continuously sell US dollars on a large scale to stabilize the British pound exchange rate in the trade market before the referendum results are released?"
Godfrey said, "Although the Bank of England's current US dollar foreign exchange reserves have decreased compared to last quarter, they still exceed 300 billion US dollars. This amount of foreign exchange reserves is sufficient to cope with various extreme situations, isn't it? Moreover, after the historical event of Soros shorting the British pound exchange rate in 1998, the Bank of England has always been guarding against extreme short-selling activities by Wall Street capital on the British pound exchange rate, so Mr. Sato absolutely doesn't need to worry."
"Alright!" Sato nodded. For a moment, he couldn't think of any other risk points for long positions.
Furthermore, when he turned his gaze to the British pound exchange rate chart, he saw that the British pound exchange rate had already rebounded to near 1.5200 points after touching a low of 1.5185 points, showing a strong tendency to repeat yesterday's trend and further approach the 1.5300 point mark.
So, after thinking for a bit, he didn't continue asking.
And when Godfrey saw the British pound exchange rate rebound and stand above 1.5200 points, a glimmer of light flashed in his eyes, and he decisively instructed Gerald to continue directing the various trading groups in the trading room to further increase long positions in the British pound exchange rate at the lower end of the consolidation range.
With Huifeng Global Universe Hedge Fund further increasing its long positions.
At 10 AM, the British pound exchange rate returned to 1.5230 points.
At 11 AM, the British pound exchange rate returned to 1.5250 points.
Subsequently, at 1:30 PM, the British pound exchange rate surged to a high of around 1.5270 points.
Then, just as Gu Chijiang of Tianhe Capital was preparing to cover some long positions and reduce the fund's long holdings when the British pound exchange rate further surged to near 1.5300 points.
At 2 PM, the British pound exchange rate plummeted again, quickly losing the 1.5250 point mark.
And then, as market trading time further progressed.
Net long positions in the market began to sharply decrease again. When trading time passed the Asian trading session and entered the early European trading session.
Net long positions in the market had decreased from yesterday's peak of over a million lots to less than 500,000 lots.
And just as many major long institutions and countless intraday speculators and retail long investors in the market believed that the British pound exchange rate would change after entering the European trading session, continue yesterday's trend, keep rebounding, and maintain the consolidation pattern between 1.5200 and 1.5400 points.
Unexpectedly...
The British pound exchange rate was fiercely attacked by major short forces in the early European trading session.
As a result, its market trend not only failed to continue rebounding but further rapidly fell back below 1.5200 points from near 1.5250 points.
"Why is the rebound pressure so great? Is Barclays Leon International, this major hedge fund, still aggressively shorting the exchange rate?"
Noticing the weak rebound of the British pound exchange rate and the increasingly strong short forces in the market.
During the European trading session, in London, at the UBS International Andrea Hedge Fund trading department, fund manager Andrea frowned, her eyes fixed on the British pound exchange rate chart.
Her previously firm belief in going long gradually began to waver after realizing that the British pound exchange rate was highly likely to break through the 1.5200 to 1.5400 point consolidation range and continue its downward trend.
(End of chapter)