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    Brexit: UK rushing to the Exit? – Scotiabank Sandeep Kanihama

    Research Team at Scotiabank, suggests that the opinion polling has seen a significant shift in sentiment with regard to the UK referendum.Key Quotes“The narrowing in surveyed opinion earlier in the month has extended to give the Leave campaign a small lead this week. Bookmakers’ odds are pricing in a higher prospect of a Leave decision. Markets are starting to have to confront the risk of what was unthinkable just a few days ago.Breakeven on 1m GBPUSD vol of 30% or so suggests markets are priced for a 9-10 big figure move in spot in the aftermath of the referendum; lower is clearly seen as the primary directional risk. That is not out of line with the potential down-side we think could be seen in GBPUSD over a 1-3 month timeframe in the event of a decision to Exit. But, with global central banks likely to ensure markets are liquid and fully functioning on June 24th, which might entail “smoothing” action directly in FX markets, some short-term vols are per-haps starting to look overdone.In the event of a win for Remain (still our base case), we think a broader relief rally in the markets could carry GBPUSD higher to the 1.45/1.50 range fairly quickly. However, weak underlying UK fundamentals combined with a fairly persistent bias towards GBPUSD softness in the second half of the year suggest that shorter-term gains in the GBP pro-vide an opportunity for sellers looking for a return to the 1.40 area later this year.”


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