Our poll tracker is pointing to a 47% probability of Leave,and so we would assume the FX markets are pricing around this probability. There has been a strong relationship between the performance of GBP's TWI and the betting market probabilities and similarly with EURCHF.
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The performance of currencies in the most recent swing towards "Leave" (June 9- 14) could provide a guide to how FX markets may respond on referendum date. In line with our view, the risk-sensitive currencies have tended to sell off the most versus USD.
Major Currency Views Impact from Brexit
GBP: Most exposed currency within the G10 and EM. Weakens through uncertainty around the UK economic growth and politics. Any commentary from David Cameron and Boris Johnson will be watched by the markets to determine the short-term path for GBP.
EUR: Weakens initially as markets debate the strength of the whole European project and whether another country may follow the UK in wanting to leave the EU. After initial weakness, EURUSD may stabilize around 1.05 as the current account surplus and low global risk appetite mean that eurozone funds find it difficult to find investment opportunities abroad, thus stopping EUR's decline.
JPY: Our favorite currency to buy as it will be driven by low global risk appetite, Japanese fund repatriation from euro zone assets and a hedge in global equity investor portfolios.
CHF: Initial strength because this is a European-related risk event.We expect the SNB to intervene in EURCHF to prevent any rapid volatile fall but not to actively weaken CHF. Our assumption would be that it intervenes if EURCHF is heading below 1.05 within a day.
CAD, NZD, AUD: All these commodity currencies have relatively little trade exposure with the UK so could be relatively stable in the first-round impact from Brexit.What is more important is the global risk environment and commodity prices. China has a large proportion of trade with the EU,and so any global trade slowdown would weaken AUD the most within this group.