Some major potentially market moving news events come up on a regular basis through the year. However others are one off. Brexit was one off, but like a type of a major cyclical news events in one respect, in that it was a surprise.
When polls closed at 10pm BST on Polling Day, the expectation was that 'Remain' had won. But once the first results came in, this expectation began to change. The markets reacted to this in the case of EUR/USD and GBP/USD by a drop down. A surprise reaction in cyclical news events tends to be a sudden sharp move which may peter out, reverse, or continue after a pause of some kind and perhaps retrace.
Brexit was much more extended in time. However, the market still bounced or at least reversed position after 5 or 6 hours of this, before dropping lower later in the case of GBP/USD. The scale of the Brexit move in GBP/USD was relatively large. On a monthly candlestick chart, the pair actually moved from 1.5, down to a low lower than its crisis low. But this was also a move which took place in a downward move since July 2014, which was itself a partial recovery from the crisis. The consequence for EUR/USD were significant, but contained in a longer term move.
Brexit could be seen as a result which was a major surprise leading into deep uncertainty, as the consequences of Brexit were not known, but of course could be speculated about. It might be remarked that the market may tend to look for relative stability and growth, for even the financial crisis stabilised, leading into the recovery in the years since. But how this plays out in the currency markets is another matter, which may tend to or try to digest news events within a larger context of its own moves and patterns.
However this said, events which push currencies strongly can have longer term effects. This was seen after the crisis is some pairs and other assets. It is perhaps a question of to what extent a major one off news move can be digested, or how long to takes to do this. On a smaller scale, when there is a major move in a more cyclical event such as FOMC or NFP, then the market at least for the next 24 hours or so, may languish in a move contingent on the major drop or rise. It is like the Forex market has no frame of reference for the move, except for the major move itself.
So one can ask in all these events, writ large or small, how does the market re-find a frame of reference to move around, where does it take it from. Is it support or resistance. Well the major move will have crashed through anything that might have provided support or resistance, which are themselves meaningful relative to time frames which will have been melted by the move. Long term support or resistance, which in some cases, for example Brexit, may be far in time, may provide an ending point but not much in the way of something to move from, to something else.
However there still is the tendency to move, but how far can this take a pair away from that low or summit somewhere to the left on the chart. It is like imagining how there can be a new pattern relative to what has taken place. This said, on smaller time frames the tendency to move will find its own patterns, with power from the reaction against the low or high. So from here, a new reference frame could perhaps be built to the extent this is possible.
