"Gu Zong, taking advantage of the British pound exchange rate pulling back to the 1.5000 point mark, shouldn't we decisively close our positions to stop losses and reduce some long positions at this time?"
In Hong Kong City, in the main fund trading room of Tianhe Capital, trading team manager Xie Hongxing, seeing that Gu Chijiang still had not adopted any remedial strategies despite the clear rebound in the British pound exchange rate, couldn't help but remind him, "The dominant market sentiment direction is still bearish. We cannot have excessively high expectations for this rebound."
Gu Chijiang glanced at Xie Hongxing and said, "Tonight's movement of the British pound exchange rate cannot be surmised by common sense. The current rebound trend has not yet ended. Let's wait and see. Large-scale stop-loss liquidation at this position, if done incorrectly, will still lead us into a very passive situation."
"But…" Xie Hongxing still wanted to say something.
Gu Chijiang had already interrupted him and continued, "After the British pound exchange rate broke through the 1.5000 mark, it didn't trigger overly extreme emotional feedback or an extreme trend, and it was able to quickly rebound. This indicates that the current British pound exchange rate trend has not deviated from a volatile pattern. On the market news front, all negative news has already been factored in.
Furthermore, during the surge in trading volume just now, many intraday short-term long and short positions in the market have already taken profits or stopped losses. At this point, the selling momentum in the market is clearly insufficient.
Under such circumstances, I think it's perfectly fine to wait a bit longer. If the British pound exchange rate can quickly recover the 1.5000 level, then this sudden drop just now was purely a bear trap."
"Bear trap?" Xie Hongxing paused, then said, "A high-volume sell-off, a violent fluctuation of nearly 200 points as a bear trap, seems unlikely, doesn't it? It feels more like an overreaction from various market fund groups, under the concentrated accumulation of short positions by the main bearish forces, to the Bank of England's less-than-expected intervention in the foreign exchange market."
Gu Chijiang said, "The amplitude of the British pound exchange rate fluctuation tonight, a range of two to three hundred points, is not considered large."
"The focus isn't the amplitude, but the change in market expectations," Xie Hongxing said. "As far as I know, the Bank of England currently has no further plans for foreign exchange market intervention. Without significant changes in expectations, the pressure for the British pound exchange rate to recover the 1.5000 mark is still very high. Moreover, although there are no major changes in current market news.
However, the power and expectations of bearish funds in the market, especially the main short-selling forces, are clearly strengthening. And from a purely technical analysis of the chart, the British pound exchange rate has clearly broken out of its previous large volatile range, forming a downward breakthrough trend."
Just as the two were briefly conversing…
In just two or three minutes, the British pound exchange rate had reversed course from around 1.4960 and quickly fallen below 1.4900.
Gu Chijiang saw that it was indeed difficult for the British pound exchange rate to rise back above 1.5000.
At the same time, he saw that the unrealized losses on the fund's positions were expanding further.
Finally, he gritted his teeth and made up his mind, letting out a heavy, helpless sigh, and began to follow Xie Hongxing's advice to concentrate on reducing positions and liquidating to stop losses.
And just as the British pound exchange rate, after a brief rebound, was still unable to recover the 1.5000 mark, and once again quickly declined at the same time.
Hong Kong City, Mitsui Jiayou Investment Company, main fund trading room.
Sato, who was leading this British pound exchange rate investment operation, also gritted his teeth and initiated a position reduction to stop losses, clearly sensing that the market trend was wrong and the bearish forces on the chart were growing stronger.
Following the position reduction operations by major long-term institutions such as Mitsui Jiayou Investment Company, Tianhe Capital, and Vanguard Capital…
The British pound exchange rate trend became increasingly weak.
At 3:00 AM Yanjing Time, the British pound exchange rate once again fell to 1.4860.
At 3:15 AM, the British pound exchange rate refreshed its daily low to 1.4820, and the selling momentum on the chart remained very strong, showing no signs of weakening.
At 3:37 AM, the British pound exchange rate fell below 1.4800, refreshing its low to 1.4770.
At 3:45 AM, the British pound exchange rate refreshed its low to around 1.4730.
"Looking at this pattern, has the market chosen to break downwards?"
Noticing the British pound exchange rate's selling pattern, with each wave stronger than the last, and long positions in the market continuously plummeting while short positions rapidly increased, essentially forming a situation of long liquidating long, Hashimoto Ichiro, the trading department manager of Nomura Bank's Investment Department, Qiao Hui Hedge Fund trading room in Tokyo, couldn't help but say.
"It does seem to be breaking downwards," said fund manager Uebayashi Kazuichi. "I never thought… the Bank of England would abandon the British pound exchange rate around the 1.5000 mark."
"Indeed, overly consistent expectations are hard to realize," Hashimoto Ichiro said. "I previously felt there were some issues with the market's unanimous bullish sentiment."
"Once a long-liquidating-long pattern forms, it's very difficult to reverse the chart trend," Uebayashi Kazuichi said. "It seems it's time for us to change our trading strategy as well."
"What are you planning to do?" Hashimoto Ichiro asked.
Uebayashi Kazuichi smiled and said, "Since the chart trend has essentially chosen a direction and made a one-sided breakthrough, our previous hedging strategy, the two-sided order strategy, is no longer useful. At this point, I think we can close out our long positions and only keep our short positions."
"Should we wait a bit longer?" Hashimoto Ichiro said. "Although the current market trend and sentiment have largely leaned towards the bearish direction, from comprehensive market information, the outcome of tomorrow's referendum still suggests a higher probability of remaining in the EU.
At this point, after breaking through the 1.5000 mark, the British pound exchange rate has fallen by 300 points. This price range has basically fully reflected all the negative market news beyond institutional expectations tonight, and also reflected some unfavorable results of the Bank of England's intervention in the foreign exchange market.
Moreover, a profit margin of 300 points is sufficient for many speculative short-term bearish funds in the market to close positions and take profits.
Furthermore, the market's net long positions gradually returning to a relatively balanced state between long and short positions also indicates that a large number of long positions in the market have completed stop-loss liquidations.
I think… at this position, if it continues to fall further, in the short term, at least before tomorrow's referendum results are officially finalized, it's likely that the British pound exchange rate won't have much more downside room or strong selling momentum.
What's more, the current black market exchange rate, after falling to 1.4300, has also largely stopped falling.
The previous obvious panic flight effect, which occurred when the British pound exchange rate plummeted to its historical low before the referendum proposal was released, is also slowly easing.
Under such circumstances, I believe that the potential for the British pound exchange rate to rebound still exists.
If we abandon our hedging strategy and opt for a one-sided position at this time, I don't think it's a good moment."
"Are you suggesting… that even at this level, the British pound exchange rate still hasn't chosen a breakthrough direction?" Uebayashi Kazuichi asked. "Do you think that until tomorrow's referendum results are officially announced, the British pound exchange rate will still maintain a relatively large volatile range?"
Hashimoto Ichiro nodded and said, "Yes, that's what I mean."
"Taro, what do you think?" Uebayashi Kazuichi did not make an immediate decision, but instead looked at Niizawa Taro, the head of the Market Research Department, who was standing beside him.
Niizawa Taro thought for a moment and replied, "I think it's indeed worth waiting to see."
"Alright," Uebayashi Kazuichi nodded slightly and then asked, "Are there any new market developments?"
Niizawa Taro replied, "Regarding tomorrow's referendum and the Bank of England, it's currently largely a news vacuum. However, there are many developments regarding the various major long and short institutions in the market."
"What developments?" Uebayashi Kazuichi continued to ask.
Niizawa Taro replied, "The latest developments are that Citibank has slowed down its sterling selling in the offline market, but they are still continuously increasing short positions in the online trading market. Blackstone Group has opted to take profits on some short positions. Goldman Sachs and BNY Mellon have no clear actions in the trading market, other than continuing to publish bearish reports on the British pound exchange rate.
Aberdeen Asset Management, apart from the 'Evolution No. 1' hedge fund, has also started to get its other foreign exchange trading funds involved in the British pound exchange rate market.
On the Chinese capital side, Huayin International and Huayi Capital, two institutions. Based on the changes in their trading seat holdings at various exchanges, it can be seen that both institutions are still successively increasing their short positions.
On the European capital side… Barclays Investment Bank has increased its short positions, while UBS International is still massively reducing its short positions. However, several institutions, such as Pacific Capital, Huifeng Bank, and BNP Paribas Investment Bank, seem to be holding firm, with no reduction in their long positions."
"What about Mitsui Jiayou?" Uebayashi Kazuichi asked.
Niizawa Taro replied, "According to the information we've received, the fund product managed by Mr. Sato at Mitsui Jiayou Investment Company in Hong Kong City has incurred losses exceeding 400 million US dollars. It's estimated that if the British pound exchange rate continues to fall, they will soon be unable to hold on and will be forced to stop losses."
"Haha…" Uebayashi Kazuichi, upon hearing this news, couldn't help but laugh aloud, saying, "It seems Sato's big gamble is truly not far from ruin."
"Mr. Uebayashi, the British pound exchange rate has started to rebound again," Hashimoto Ichiro reminded him.
Uebayashi Kazuichi nodded slightly and said, "I see. It seems you were right; this level will continue to kill off intraday speculative trading, and it's highly probable that a new volatile range will form. In that case… let's continue to maintain our hedging trading strategy and wait for the right opportunity."
After speaking, he composed himself and continued to observe the British pound exchange rate's movements.
As market trading hours continued to pass, after falling to around 1.4700, the British pound exchange rate indeed began to rebound again as selling momentum exhausted.
In just over ten minutes, it had already recovered the 1.4750 mark.
After that…
Until 6:00 AM Yanjing Time, the British pound exchange rate continued to fluctuate within the range of 1.4700 to 1.4850.
During this fluctuation, the number of long and short positions in the market began to accumulate again.
However, due to market sentiment and the latest news feedback still leaning towards the bearish side, the growth rate of new short positions was noticeably faster than that of new long positions, thus forming a volatile trend of rapid drops and slow rises.
"Su Zong, why don't you go get some sleep?"
When market trading hours reached 7:00 AM Yanjing Time, shifting from the US trading session back to the Asian trading session, in the main fund trading room of Huayi Capital in Hong Kong City, trading team manager Qu Zecai looked at Su Yi, who had stayed up all night, and said with concern.
Su Yi stood up from his office chair, glanced at the British pound exchange rate, which was still fluctuating between 1.4700 and 1.4850, and replied with a smile, "Today is the day of the official referendum. Market uncertainty is still very high, and volatility will become increasingly severe. This battle between bulls and bears might only truly enter its climax from this moment on. We need to pay constant attention."
"We're all here watching," Qu Zecai said. "There shouldn't be any problems."
Su Yi rubbed his eyes, smiled, and said, "It's fine. I managed to doze off for a bit when it was about to get light and regained my energy. There are still over 8 hours until the official referendum begins. Everyone, please bear with it a little longer. After we finish this trade, I'll let everyone rest for a few days and relax."
"Thank you, Su Zong," the traders in the room responded.
In fact, seeing the continuous decline of the British pound exchange rate, the aggregated fund holding accounts, and the insane growth in profit figures from each trader's sub-accounts, everyone was not tired at all. Both their emotions and spirits were essentially in a state of excitement.
After this night of intense market volatility and continuous clashes between bulls and bears, at this moment, the main fund product, 'Huayi Chengyuan No. 1', managed by Su Yi, had accumulated 300,000 lots of British pound short orders, with a total margin investment for short contracts reaching 250 million US dollars, and total unrealized profits exceeding 600 million US dollars.
And just as the traders were responding, and with 8 hours remaining until the official start of the referendum, new major market news suddenly broke.
According to the latest market news, global foreign exchange trading markets, various exchanges, and major global market maker institutions, companies, and investment banks surprisingly announced, in unison, that to prevent extreme trading risks, the trading leverage for the British pound exchange rate would be directly reduced to a maximum of 10 times.
This means that opening one lot of British pound long or short standard contracts would require at least 10,000 US dollars in capital.
Of course, weakening the leverage and significantly increasing the trading margin would reduce the amount of speculation by small capital groups, clearing the way for large funds and institutions to compete.
"Su Zong, according to the newly released regulations, our cost to open one lot has increased by at least 1x again!" Qu Zecai exclaimed. "If we want to maintain our position size going forward, I'm afraid we can't arbitrarily reduce or open positions. The exchanges are clearly doing this to suppress intraday speculative funds in the market and reduce the volatility of the British pound exchange rate!"
Su Yi's eyes were sharp, and he calmly said, "No worries. Our current capital reserves are still quite ample. This rule change will not have a significant impact on our institution, nor will it greatly affect the trend of the British pound exchange rate. What's most important right now are the news drivers related to the referendum and the Bank of England's attitude towards market intervention."
(End of Chapter)