Don’t Take FX Positions Ahead Of The EU Referendum – Credit Agricole

Trading strategies on the EU Referendum are piling up. Here is a totally different approach: not to trade it at all.

Here is their view, courtesy of eFXnews:

Overnight risk sentiment improved. In G10 FX the GBP was among the strongest currencies, mainly on the back of rising expectations of this week’s referendum resulting in the UK remaining part of the EU. According to the latest Survation poll, which was conducted after last week’s tragic events the “Remain” camp was favoured by 45% and “Leave” found support among 42% of respondents. The poll marked a reversal as compared to the previous poll.

In Japan May trade data was released. At 11.3% YoY exports fell at the fastest pace since January this year. According to our economists the latest development should be taken as a negative factor especially when it comes to growth sensitive risk assets such as equities. As a result to more muted export growth, the seasonally-adjusted trade surplus was squeezed to JPY269.8 billion, from JPY397.0 billion in April, which could be a factor capping the JPY. However, in the current environment it should remain about global risk sentiment to drive the currency, especially when considering that the BoJ just last week reaffirmed that more is needed to make a case of additional policy action. Even if risk sentiment may improve further at the start of the week, some caution may still be warranted as markets may turn more cautious in the next few days. We stay of the view that no positions should be considered ahead of the EU referendum. Given our base case for no Brexit, we see scope of rebounding risk appetite later on.

However, in order to make a case of sustainably improving appetite for risk assets, global growth prospects may have to improve more considerably. It must be noted too that with the UK staying part of the EU, investors’ focus may swiftly shift back to other market drivers such as Fed rate expectations. This is especially true as external factors such as the referendum have been preventing investors’ short-term Fed rate expectations from rising. Our economists stay of the view that the Fed will consider two more hikes this year.