Société Générale on their strategy to trade the UK Brexit Referendum
The UK referendum is less than a week away. Opinion polls are following the Scottish pattern and moving back a bit in favour of the status quo as the final week of campaigning begins in a more subdued manner than was the case before the murder of Jo Cox. The sharp narrowing in the betting odds has ended and 'Remain' remains the favourite.
CFTC positioning data suggest that speculators were cutting back short sterling positions in the run-up to last Tuesday and the fact that the pound wasn't one of the weaker currencies last week supports a sense that the debate around the referendum changed a bit. In the Netherlands and Spain last week I was asked far more about the broader implications, for CEE currencies, for the yen, for BTPs and Bonos, for global risk sentiment and for the Euro, than I was asked about sterling.
Our sterling view remains that GBP/USD would bounce to 1.50 on a 'Remain' and fall towards 1.30 in a 'Leave' vote, a pretty symmetric reaction initially. Longer-term, we'd sell 1.50 and sell into any bounce after the initial GBP/USD fall on a 'Leave'.
We expect EUR/USD to fall to around 1.06 on 'leave' and to bounce to around 1.20 on a 'Remain'. As with the pound, our bias once the dust settled would be to sell the Euro.