"Crazy, crazy, this trend is truly insane."
Seeing the pound exchange rate plummet instantly, countless aggressive day traders who had chased long positions were reluctantly forced to stop their losses.
And as day traders who had gone long covered their positions to stop losses, and with the massive short-selling pressure from major short-selling institutions, along with many copycat day traders quickly pursuing short positions... the pound exchange rate paused for only about ten seconds between 1.5240 and 1.5250, then plummeted again, continuing its rapid dive to around 1.5200.
Afterwards, information regarding the preliminary vote counts for the Orkney Islands and the Hebrides spread rapidly.
The long and short forces in the market, as well as the outstanding long and short positions.
Once again quickly showed a trend reversal.
"The fluctuation in the pound exchange rate tonight is truly exaggerated."
Seeing that in just a few minutes, the breakthrough momentum organized by the bulls on the market was ruined, and the bears had reclaimed a victory.
At this moment, in the Cayman Islands, FXCM International Headquarters, Risk Control Management Department, risk control monitor Angus couldn't help but exclaim in surprise.
"Indeed!" Hubert, the Risk Control Department Manager, nodded slightly, "Within a few hours, market traders participating in intraday speculative trading, whether going long or short, have been harvested several times over. Fluctuations of one to two hundred pips are common; this range of oscillation is indeed exaggerated."
"The key is that, based on comprehensive market news, there's still no clear expectation for tomorrow's referendum result," Angus said. "It's still hard for the long and short sides to determine a winner on the market."
"With such massive long and short positions clashing, naturally no one is willing to concede without seeing the final hand," Hubert said. "It's just that the market trend is becoming more intense, and the number of long and short positions accumulated in the market is growing larger and larger, posing an increasingly high risk control challenge for our company!"
"Looks like everyone will have to pull an all-nighter tonight," Angus said with a smile.
Hubert nodded slightly: "Anyone involved in foreign exchange trading probably won't be able to sleep tonight."
"Boss, what do you think tomorrow's referendum result will be?" Angus thought for a moment and asked, "Which direction do you think the pound exchange rate's trend will ultimately break out in an extreme way?"
Hubert said, "Judging solely from the market chart, the strength and expectations of the bulls are clearly stronger, but in the off-market, especially in the black market where large-scale trading is currently taking place, the pound exchange rate has actually shown signs of collapse.
Although the trend of the pound exchange rate in the black market is largely manipulated by powerful Wall Street short-selling capital within the market, this also illustrates the corresponding choices global capital is making to avoid the uncertainty of the pound exchange rate.
Therefore, if we rely on the off-market pound exchange rate trend... In fact, the current combined direction of global capital is actually leaning more towards the short side.
However, there is a major variable factor here, so I can't say for sure which direction the pound exchange rate will ultimately make an extreme breakthrough; we can only wait and see."
"The biggest variable factor the boss mentioned should be the Bank of England, right?" Angus said.
Hubert nodded slightly and said, "Yes, in the entire confrontation between long and short forces, the Bank of England's stance and its determination to maintain the pound exchange rate are the most crucial chips determining victory or defeat at this huge gambling table. However... it seems the Bank of England is still clearly somewhat hesitant in its determination to defend the pound exchange rate!"
"The Bank of England has already publicly sold $10 billion in foreign exchange reserves to the market," Angus said. "Can that be considered a lack of determination?"
Hubert responded, "Under normal circumstances, a $10 billion injection of foreign exchange reserves would certainly be enough to stabilize the pound exchange rate. But now... it's a special period, a special time.
A $10 billion injection of foreign exchange reserves clearly cannot curb the panic among major global capital and numerous multinational trading companies selling off pounds.
In fact, I believe that at this moment, the Bank of England, while aware of the risks in the exchange rate market, has not truly made up its mind."
"It's hard to make up one's mind!" Angus said. "If tomorrow's referendum result is unexpected, leading to a successful Brexit, then no matter how much USD foreign exchange reserves the Bank of England publicly injects into the market tonight, it will be futile for stabilizing the pound exchange rate.
Just like the 'Swiss franc Black Swan' night last year. Almost all global capital institutions were waiting for the Swiss National Bank to defend the CHF 1.0000 level, increasing long positions in the market and selling USD foreign exchange reserves.
Everyone had established pre-positioned orders, all wanting to fleece the Swiss National Bank. And the Swiss National Bank saw this. So it decisively abandoned its market defense plan, dashing the expectations of major global capital institutions and countless speculative traders.
It also caused the Swiss franc exchange rate to plummet by over 7000 pips in an instant. In hindsight, actually, The Swiss National Bank's strategy at the time to abandon defending the 1.0000 level, choosing instead to enter the market to go long with concentrated funds and sell USD foreign exchange reserves to stabilize the exchange rate after a large number of pre-positioned long positions in the market were liquidated, was entirely correct.
After all, this way, a lot of capital could be saved, and the task of stabilizing the exchange rate would be better accomplished. And in reality, although the Swiss franc exchange rate plummeted by over 7000 pips at the time, it recovered to the 1.0000 level by the next morning thanks to the Swiss National Bank's swift action.
So I think... If tomorrow's referendum result deviates significantly from what everyone expects, The Bank of England might also do the same, not blindly pouring in massive funds to stabilize the pound exchange rate above the 1.5000 level."
"Hmm, you're right," Hubert nodded. "So, the most important factor determining the Bank of England's resolve to defend the market and maintain the pound exchange rate is still the outcome of tomorrow's referendum.
As long as tomorrow's referendum result is in line with expectations, that is, to remain in the EU, then the Bank of England can inject substantial funds at this level, vigorously defend the market, and help the major long-term players in the market to decisively defeat the short-selling institutions.
And we, at present, can also observe the direction of tomorrow's referendum result through the Bank of England's attitude towards market operations."
"As long as the Bank of England aggressively increases its long positions and continuously injects USD foreign exchange reserves into the market for the rest of tonight..." Angus said, "that should indicate that tomorrow's referendum result is completely settled, right?"
Hubert nodded slightly and said, "That is indeed the case."
"Then I hope the Bank of England's market operations can be a bit stronger," Angus said. "Currently, among our institution's client base, the total position in the pound exchange rate still shows a significant net long position. In this scenario, if an extreme market event for the pound breaks out and the direction of the breakthrough is downward... our losses will be even more severe."
"Actually..."
Angus paused here, then continued, "If the Bank of England's actions are determined, and tomorrow's referendum result is largely certain, I think it wouldn't be a bad strategy for our institution to establish corresponding positions for risk hedging."
"There's a lot of smart money in the market; if the referendum result were truly largely certain with few variables, the major long and short players in the market would have already reacted accordingly," Hubert said. "By then... attempting to make hedging trades would be almost impossible, so this strategy won't work. The best approach is for everyone to work a bit harder, monitor the market closely, and pre-mark client risk accounts."
"Alright," Angus thought for a moment and could only nod in agreement.
And just as the two were discussing what countermeasures the Bank of England would take next, whether it would increase the injection of USD foreign exchange reserves, and whether it would continue to add to its long positions in the market...
11:00 PM Beijing time, London, Bank of England headquarters.
As the actual market operations trading room for the Bank of England to maintain the pound exchange rate, all traders and department heads were staring at the pound exchange rate trends, receiving various market information offline, with no intention of resting or sleeping.
Tonight, for the entire Bank of England institution, no one could truly sleep.
"Based on the preliminary vote counts disclosed so far, can we still not be 100% sure of tomorrow's referendum result?"
In the Governor's office at the Bank of England, Brian, as the Governor of the Bank of England, stared at Clement, who was the head of the Central Bank's Monetary Policy Strategy Department and also a member of the Central Bank Committee, and asked.
Clement replied, "Due to the unexpected preliminary vote counts from the Orkney Islands and the Hebrides, the uncertainty regarding tomorrow's referendum result has indeed become high again. However, based on the current preliminary vote counts, the likelihood of remaining in the EU is still over 80%."
"I don't want 80%; I want 100%," Brian said. "As long as there's a possibility of an unexpected outcome in tomorrow's referendum, we cannot extensively and continuously inject USD foreign exchange reserves into the market, nor can we indefinitely increase our long positions.
Because once we fire a large amount of ammunition we hold prematurely, And the result is contrary to our expectations, Then, with accumulating market sentiment and the run-on-pound effect of global capital dumping sterling, we would completely lose the power to maintain the stability of the pound exchange rate."
"Alas, originally, after the Birmingham data came out, things were already developing according to our expectations," Clement said. "Who would have thought that the preliminary vote counts from the Orkney Islands and the Hebrides would be so unexpected, and so different from what our government agencies had previously anticipated."
"This shows we still underestimated Salmond's personal influence!" Brian said. "No wonder so many people in the government cabinet couldn't stand this guy, yet were powerless against him for a while."
"I always feel that this incident is increasingly getting out of everyone's control," Clement said. "What are Minister Andrew and the Prime Minister thinking right now?"
Brian said, "Minister Andrew naturally fully supports us, but the Prime Minister is clearly hesitant. It's estimated that there are quite a few people in the cabinet who want our country to leave the EU system. Alas... a perfectly good strategy is now truly hamstrung by uncertain results."
"There's no way," Clement also sighed helplessly. "We must seize the initiative. With an uncertain outcome, it's impossible to bet everything and deplete the central bank's USD foreign exchange reserves."
After experiencing the 1998 financial crisis,
All committee members of the entire Bank of England now know the consequences of prematurely showing their hand, exhausting foreign exchange reserves to forcibly maintain the pound exchange rate.
That would only attract even more aggressive short-squeezing from Wall Street capital.
And would only lead to them being at the mercy of others.
"But if we don't continue to respond, with market sentiment gradually shifting towards a bearish direction, and Wall Street capital, as well as global capital, continuing to rush to sell off pounds, while simultaneously increasing short positions in large quantities, guiding market sentiment further towards the short side..." Clement paused, then added, "The subsequent situation will also become increasingly difficult."
Brian helplessly rubbed his temples, paced a few steps back and forth in the office, and after a moment of contemplation, said, "If there's really no other way, we can only choose to do what the Swiss National Bank did back then. We can verbally call on everyone to go long and defend the pound market exchange rate, and we can also appropriately invest funds, but it must be kept within a limit.
If we truly cannot support the market, and cannot resolve the current panic among global capital systems rushing to sell off pounds, And cannot restore confidence in going long in the market, Then we will have no choice but to abandon the defense, wait for tomorrow's referendum result to be finalized, and then re-enter the market to quickly rescue the exchange rate."
"If we do that..." Clement was startled when he heard Brian's words and said, "That would be equivalent to abandoning the large number of capital institutions currently holding long positions in the market. We must remember that the main long-term players in the market currently include many of our domestic banking institutions and investment firms.
If we abandon and give up defending the current pound exchange rate, These large number of domestic financial institutions and investment firms that have gone long would likely have no chance to exit safely at all.
Once Wall Street capital fully drives down prices and intentionally creates even more panicked short sentiment, Once the pound exchange rate experiences extreme downward fluctuations after we abandon our defense, these banks and investment firms that went long might not have enough time to close their positions and stop losses.
This would cause numerous institutions to incur huge losses. It would also cause our country's capital and major financial institutions to suffer immense losses."
"If we wait a few more hours and still cannot be 100% certain of tomorrow's referendum result..." Brian gritted his teeth and said, "then we will have no choice but to make that decision."
"Alas, alright," Clement sighed heavily and helplessly, saying, "For now, we can only hope that some good news appears in the next few hours, and we can only hope that, in the current situation, these many long-term institutions in the market can withstand the continuous sell-offs by Wall Street short capital."
(End of Chapter)