Less than 24hrs away from the EU referendum, the atmosphere is akin to the moments before a western shootout. We know trouble is brewing yet there is a relative calmness before trouble erupts.
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Large funds and hedgers have likely already taken their positions which will likely lower volatility overnight before the big event. With no significant news for Australia or New Zealand left this week, the EU referendum is the only game in town for the crosses.
Despite the heightened sense of alert, NZD and AUD remain elevated at 1yr and 8-week highs, respectively, but look vulnerable to being knocked off of their perches before a true, directional move takes place. A landslide victory for remain will likely send AUD and NZD higher but as data is released, moves in both directions are likely. The polls will no doubt dictate the direction, trajectory and volatility of most asset classes tomorrow.
Tomorrow will not be your usual ‘red news’ release, where traders react to the same information at the same time. Instead we can expect whipsaws and extreme volatility which doesn’t necessarily lead to nice moves.
Flirting with 75c AUDUSD also looks vulnerable to a down spike whilst at its 8-weel high. However, we remain confident that UK remaining should send the Aussie crosses higher at the end of the day, but like all other markets, becomes a question of how straight the line is getting there.
Whilst implied volatility has increased across most global markets in the lead-up to tomorrow we will have to wait to see if realised volatility lives up to anticipation. At current levels we feel a spike lower is almost inevitable at some stage tomorrow, but if the results do begin to favour a remain vote then we can start seeking bullish setups at support levels.
NZDUSD printed a fresh 1-year high following 5-consecutive bullish closes. Respecting a cluster of resistance below 72c the cross looks over-extended and vulnerable to be knocked off of its perch. That said, with big events like the EU referendum less than 24 hours away, such technical levels can quickly be written off, so UK remaining should easily see 72c break to the upside and target the 74c handle.