"This trend, it feels like the 1.5000 point level won't hold!" Seeing that in just a flash, the sterling exchange rate had plunged by over 100 points, falling back to near the 1.5000 level, in the trading room of Navigator Capital's 'Amanda' hedge fund on Wall Street, USA, fund manager Cedric sighed helplessly.
"If the 1.5000 level doesn't hold, then the sterling exchange rate's trend will be very dangerous." Guy, the head of hedge fund asset management, stared intently at the sterling exchange rate's market trend, paused, and then turned his gaze to Bella, a researcher in the Market Information Department, asking, "Is there still no progress on the market news front?"
Bella replied, "No relatively positive news has emerged, and there's no further news from the Bank of England either. However, there's quite a bit of news about major institutional short sellers like 'Citibank,' 'BNY Mellon,' and 'Blackstone Group,' but it's all bearish for the market."
"That shouldn't be the case!" Cedric said. "Logically, with the sterling exchange rate having fallen to this point, the Bank of England should have taken action."
"Could it be that the Bank of England intends to abandon the exchange rate?" Caroline, a core trader in the trading room, replied.
"Abandon the exchange rate? Unlikely," Guy said. "Currently, the main bullish institutions in the sterling exchange rate market are mostly European capital, as well as various British domestic financial and investment institutions. If the Bank of England were to abandon the exchange rate, what they would lose would not just be the central bank's institutional credibility. It would lead to huge losses for many European and British domestic capital that are long. It would also cause their national wealth to be massively plundered by a host of short-selling institutions both on and off the market."
"But in terms of actual market performance..." Cedric said. "We haven't actually seen strong intervention or long-positioning actions from the Bank of England."
"So, what's your implication?" Guy turned his gaze to Cedric.
Cedric said, "Market sentiment is increasingly shifting towards a bearish direction. The net long positions in the market are still rapidly dwindling. This indicates that many funds that were previously long are quickly retreating.
Furthermore, every rebound in the sterling exchange rate's trend tonight has shown a weakening trend. This indicates that under the current combined market forces, the path of least resistance for the sterling exchange rate is clearly downwards.
Given this, we cannot continue to gamble. At the very least, we must be mentally prepared for the sterling exchange rate to quickly break through the 1.5000 level, for long sentiment in the market to collapse, and for the market decline to further expand."
"You mean... you suggest our institution reduces long positions at this point to lower holding risk?" Guy said, "But the current support line hasn't truly been broken. If we imbalance and massively reduce positions here, it's possible we might just be reducing them at a relatively low point!"
Cedric said, "I think that compared to reducing positions at a relatively low point and missing out on subsequent sterling exchange rate rebounds, controlling risk and preventing the huge losses that could be incurred due to the sharp downturn in sentiment after the sterling exchange rate breaks through the 1.5000 level, is far more important."
"Net long positions in the market have shrunk to around 150,000 lots." Caroline reported in a timely manner.
"Latest news..." At this moment, Bella, who had been constantly refreshing the computer interface and compiling market news from various sources, also hastily reported, "There's still no movement from the Bank of England, but 'Citibank' is continuing to dump sterling on the black market, and at the same time, the black market sterling exchange rate has already fallen below the 1.44 level."
Guy glanced at the three people in the trading room, pondered for a moment, and said, "Alright, let's proceed with the trading strategy as proposed by Manager Cedric."
At this moment, almost all of Wall Street was shorting the sterling exchange rate.
And just as Cedric had said, the sterling exchange rate's market trend was increasingly shifting towards a bearish direction.
Moreover, no clear positive news had spread on the news front.
In this situation, the sterling exchange rate at the 1.5000 point level would not hold for too long.
On the other hand, their institution at this moment held nearly 300,000 lots of sterling long positions.
If they didn't guard against the risk of extreme fluctuations in the sterling exchange rate, then if the sterling exchange rate truly moved in the opposite direction of their expectations, they would indeed be in a completely passive situation.
Seeing Guy agree to reduce positions and stop losses at this level, Cedric glanced at the sterling exchange rate's market trend and, without much thought, immediately issued relevant trading instructions to the various trading teams in the trading room.
And as the instructions were issued...
A large number of long liquidation orders flooded the sterling exchange rate market.
And when so many long liquidation orders were unleashed in concentration, the already precarious sterling exchange rate instantly flash-crashed from near 1.5020 to 1.5005.
At the same time, seeing the increasing danger of the sterling exchange rate breaking below the 1.5000 level,
in the market, more and more intraday long speculative positions began to rush to liquidate and stop losses.
And an increasing number of trend-following speculators began to further aggressively short sell.
"It feels like the opportunity to officially break through the 1.5000 level has matured!"
Seeing the sterling exchange rate getting closer and closer to the 1.5000 level, and to the critical support level that would break the confidence of long positions in the market, in the trading room of Investment Department II within 'Huayin International', an institution linked with Su Yi's 'Huayi Capital' in Hong Kong, Meng Shengfei's eyes lit up, and he said excitedly,
"The long and short forces in the market are becoming completely unbalanced. In this situation, it feels like we only need to guide it further to completely reverse the market trend. This will cause the main long institutions in the market to gradually fall into a self-inflicted long-liquidating-long situation."
"The long and short forces in the market are indeed becoming further unbalanced," said Kong Fansheng from Investment Department I. "Net long positions have already shrunk to around 150,000 lots. You know... just a few hours ago, the market's net long positions were close to 1 million lots."
"What about the Bank of England?" Facing the ideas put forth by the two, Su Yi did not make an immediate decision.
Instead, he asked Frederick, the manager of 'Aberdeen Asset Evolutionary Theory No. 1 Hedge Fund,' who was more informed in market information and intelligence gathering capabilities, "Mr. Frederick, are there any unusual movements from the Bank of England currently?"
Frederick replied, "According to the information our institution has received, the Bank of England is not further increasing its intervention in the market, nor is it expanding the deployment of its US dollar foreign exchange reserves."
"It seems that the latest preliminary vote counting results announced in places like the Shetland Islands, Orkney Islands, and Outer Hebrides have completely stumped the Bank of England's original market intervention plan and its plan to target Wall Street short capital." Su Yi smiled and said, "The sterling market exchange rate has fallen to the 1.5000 level, yet the Bank of England has not made any immediate strong intervention. This indicates that with significant uncertainty already existing regarding tomorrow's referendum results, the Bank of England does not dare to operate blindly, wasting its US dollar foreign exchange reserves in hand, nor does it dare to blindly support the market against its developing trend."
"Director Su means... the Bank of England is likely to abandon strong intervention and market support for the sterling exchange rate?" Kong Fansheng instantly understood, thought for a moment, and continued, "But if they don't intervene now, and wait for long sentiment in the market to further decline, and the entire market to fall completely into a long-liquidating-long situation, then it will be even more difficult for the Bank of England to support the market or stabilize the sterling exchange rate, won't it?"
Su Yi replied with a smile, "No. Referring to last year's 'Swiss Franc Black Swan' event, once the long forces in the market are completely crushed and extreme sterling exchange rate movements erupt, there will be very few long position holders left in the market. Instead, the massive short forces that need to take profit will become the market's new long force. What are called 'longs' are potential 'shorts', and what are called 'shorts' are potential 'longs'."
"So... Director Su agrees with my proposal just now?" Meng Shengfei said with a smile.
Su Yi nodded slightly and said, "Since the long and short forces in the market are already unbalanced, and at the same time, the Bank of England is affected by the uncertainty of tomorrow's referendum results and dares not show its hand, continuously injecting large-scale US dollar foreign exchange reserves into the market to quickly stabilize the sterling exchange rate, then at this moment, with the sterling exchange rate already at the critical support level of 1.5000, we naturally shouldn't waste the opportunity."
"Haha... I was waiting for Director Su to say that." Meng Shengfei couldn't help but laugh excitedly, and then, without waiting for the other two to respond, he immediately turned and instructed the trading teams in the trading room, "Immediately, concentrate on increasing short positions at market price, suppress the sterling exchange rate trend, and break through the 1.5000 level in one fell swoop."
Upon hearing Meng Shengfei's words, the trading teams quickly began typing on their keyboards, continuing to short the sterling exchange rate.
And simultaneously, as the traders were operating,
Kong Fansheng of Investment Department I, Su Yi of Huayi Capital, and Frederick of Aberdeen Asset Evolutionary Theory No. 1 Main Hedge Fund all simultaneously issued the same instructions as Meng Shengfei to the various trading teams under their respective funds.
Then, when the three main short-selling institutions jointly concentrated on shorting the sterling exchange rate,
when tens of millions, even hundreds of millions of US dollars in funds, were instantly injected into the sterling exchange rate market,
the sterling exchange rate, which had been hovering around 1.5005 to 1.5020, suddenly plunged downwards again.
With a swift momentum, it broke through the 1.5000 level in one leap, touching a low of 1.4980 within one minute.
And when the sterling exchange rate, after more than half a month, once again broke through the 1.5000 level,
the numerous long fund groups and short fund groups in the market quickly realized that the sterling exchange rate had fully turned bearish.
It could no longer maintain its large volatile trading range between 1.5000 and 1.5400.
Thus...
The next moment, it was 1:22 AM Beijing time.
On the sterling exchange rate market, having broken through the 1.5000 level, an immense volume of long positions began to rapidly and frantically cover.
And simultaneously, an immense volume of primary short-selling orders surged like a flood, aggressively pouring into the market.
Under the combined impetus of long positions covering and shorts aggressively forcing longs to sell,
at 1:23 AM, in just one minute, the sterling exchange rate plummeted directly to the 1.4900 level.
After that, the sterling exchange rate didn't even hold steady at the 1.4900 level for 20 seconds before continuing its flash crash.
At 1:25 AM, the sterling exchange rate touched the 1.4830 level.
And these few short minutes instantly caused a complete reversal of the long and short dynamics on the sterling exchange rate market.
It also caused the net long and short positions in the market to shift from net long to net short for the first time.
Of course, this also put 'Huayi Capital,' managed by Su Yi,
as well as the short positions of the two institutions linked to it, 'Huayin International' and 'Aberdeen Asset Evolutionary Theory No. 1 Hedge Fund,' all into a state of substantial unrealized gains.
Among them, 'Huayi Chengyuan No. 1' main hedge fund, managed by Su Yi,
with 220,000 lots of sterling short positions, had unrealized gains exceeding 300 million US dollars.
"Holy cow, this trend is too fierce."
Noticing that his own managed fund product also had unrealized gains exceeding 50 million US dollars in a few minutes, Meng Shengfei couldn't help but exclaim, "In just a few hours, a fluctuation of over 500 points! From losing tens of millions of US dollars to gaining tens of millions of US dollars, it's truly hell one second, heaven the next; it couldn't be more exciting!"
"'Demon Pound,' as it's known, truly lives up to its reputation!" Meng Fansheng also couldn't help but exclaim excitedly at this moment.
"This is just the beginning." Su Yi, hearing their exclamations, smiled softly and said, "The long and short dynamics in the market have only just begun to reverse. Currently, the main long positions in the market are still as high as over 3 million lots. This means the real show... is yet to come."
"To completely crush the main long positions entrenched in the market and cause the market to fully enter a long-liquidating-long situation is still not easy." Frederick, whose emotions showed no excessive excitement at this moment, remained very calm as he said, "This wave of bearish reaction, the emotions have been largely vented, and the rapid downward movement of several hundred points has been enough to attract a large number of intraday speculative positions in the market to take profit.
And the profit-taking by most intraday speculative positions will weaken the market's momentum for further decline. Furthermore, the main long institutions in the market will certainly not sit idly by. I believe that next, with tomorrow's referendum results not yet fully settled, the sterling exchange rate's market trend is likely to see significant volatility."
"I completely agree with what Mr. Frederick said." Su Yi said, "However, since the Bank of England dares not show its hand and forcefully support the market against market pressure, that indicates the real potential for tomorrow's referendum results to favor Brexit is significant.
In other words... relatively speaking, the concerns of shorts in the market are certainly less than those of longs. Coupled with the pull and influence of the plummeting black market exchange rate on the public market exchange rate trend, it's basically unrealistic for longs to regain the initiative in subsequent market movements. However..."
Su Yi paused, and a sharp glint suddenly flashed in his eyes as he smiled confidently and said, "I actually hope that the main long institutions still entrenched in the market, who have already lost the initiative, are in a state of unrealized losses, and are reluctant to massively stop losses and reduce positions, can continue to invest more funds and continue to struggle and counterattack.
After all, only then can we, in this long-short battle, in this Brexit referendum event that is capable of changing the history of global economic and financial development, seize extremely substantial exorbitant profits."
(End of Chapter)