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    Brexit: Final pre-referendum thoughts - SocGen Sandeep Kanihama

    Kit Juckes, Research Analyst at Societe Generale, notes that the final pre-vote poll (from ComRes) showed a small majority for ‘Remain’ and the pound is higher.Key Quotes“Markets are ‘cautious’ to borrow from the FT. Market risks were broadly symmetric a week ago when opinion polls shifted in favour of ‘Brexit’ but the last few days have changed that. A decision to leave the EU is bad for global risk sentiment, good for the yen, and bad for sterling, the Euro and higher-beta currencies particularly central and Eastern European ones.On a ‘Leave’ decision, we expect GBP/USD to fall to 1.30-1.35 quickly and we look for an eventual fall to 1.20-1.25 The Euro would suffer too, falling to 1.04-1.08 initially and potentially further over time. This takes EUR/GBP to 0.80-0.85. The Yen would out-perform the dollar, with USD/JPY potentially breaking 100 temporarily.Other immediate moves would see strength for CHF vs. NOK, SEK, and PLN and a kneejerk reaction of weakness by AUD and NZD vs. JPY as well as some contagion to EM Asian currencies, even if the direct economic impact is small.On a ‘Remain’ vote, moves ought to be slightly smaller given positioning. GBP/USD can trade to 1.50-1.55 and EUR/USD test the last year’s high at 1.17, though if that breaks we could still see a further spike to 1.20. 1.17-1.20 in EUR/USD and 1.50-1.55 in GBP/USD represent long-term selling opportunities in our view, as both currency pairs will be too far out of line with underlying economic and policy prospects.We’re sellers into a GBP/USD rally. As for EUR/USD, our base case is drift down in the current range on ‘remain’ and concern that positioning could drive a surprisingly big spike first.Away from sterling and the Euro, the biggest FX loser in a ‘Remain’ is the yen. USD/JPY could bounce to 110-115, taking EUR/JPYU all the way from 118 now to 130. Yen weakness would be seen in all the Yen crosses.”


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