Week Ahead: Brexit, Bremain, Brace Yourself!

[thenews]

After several months of market volatility and anxious observation of the pre-referendum polls, FX investors will finally have an answer to the question: Brexit or Bremain? Our central case still is that a Brexit will be avoided.

If confirmed next week, this could open the door for a relief rally in GBP, NOK, SEK as well as AUD, NZD and CAD. At the same time, safe haven currencies like JPY and CHF should retrace some of their recent gains. The balance of risks seems to favour a somewhat higher EUR but mainly against CHF and JPY. Given that the risk of a Brexit played a role in the recent Fed dovish shift, a Bremain vote could encourage some frontloading of rate hike expectations and help USD.

Needless to say, the risk of a Brexit will likely linger and may even grow in the run-up to the EU referendum, especially if we see an extension of the recent trends in the polls. FX market liquidity should deteriorate further as investors await the outcome of the vote before putting fresh bets on. We therefore remain very cautious on the outlook for risk in the very near-term. Indeed, growing risks of a Brexit have so far weighed disproportionately more on the European G10 currencies including the EUR. That said, the realization that the referendum could trigger a shock for global risk sentiment should lead to more AUD, CAD and NZD underperformance as well. Growing risk aversion should be positive for JPY although the threat of FX intervention could mute any future gains. The risk of a Brexit has already encouraged investors to pare Fed rate hike bets to 2018. With some negatives in the price already USD’s superior liquidity should underscore its resilience against G10.

A potential Brexit will deal a massive blow to global risk sentiment and push GBP TWI closer to the lows last seen in the wake of the Lehman crisis. European and commodity G10 currencies will suffer as well, whereas USD and JPY emerge as the likely winners. More policy action by the BoJ should ultimately erode the demand for JPY, however.

Data releases ahead of the EU referendum include second tier data out of the US and the Eurozone as well as the Norges Bank’s June meeting, all of which are less likely to have a sustained impact on the FX market.

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[thenews]

Petition to have Brexit referendum cancelled gathers momentum

The Independent today reporting on a petition to have the EU referendum cancelled 19 June 2016

• a petition to cancel next week's European Union referendum has surged in support in the days following the killing of MP Jo Cox.
•  over 20,000 people have signed the statement on the Parliament website in the last few days calling for the vote to be called off at the last minute
•  the petition has over double the 10,000 required signatures for it to reach its first hurdle, the Government will be obliged to issue an official response to it in due course.
• at the current rate of increase the campaign looks set to hit 100,000 signatures before polling day on Thursday - a bar which would normally trigger a debate in parliament.

Parliament is currently in recess though until after the referendum so that MPs can campaign for their preferred side so a debate is highly unlikely to take place.

Says The Indy:

The petitioners argue that Britain is a parliamentary democracy and that parliament, rather than a national plebiscite, should determine whether Britain stays in the EU.

"According to the BBC 444 MPs of (almost) all parties have declared their support for Britain staying a member of the European Union on the basis of the reform package negotiated by the Prime Minister," the petitioners say.

"Constituting more than 68 per cent of the votes in the House of Commons, this represents a rate and overwhelming cross-party Parliamentary majority.

"If it is the settle will of such a large majority in the House of Commons, Parliament should now rise to the occasion and asset the very sovereignty Brexit campaigners claim it has lost."

The argument of whether a referendum should have been called in the first place has been there from the start with many observers/voters saying any decision on EU membership should have been left to those we elect to serve.

Sadly it's taken a brutal murder to re-awaken that particular debate, and too late it would appear in any case.