Bank of America: Analysis of possible Brexit vote outcomes

Remain:
·         10% rally in GBP TWI at time of writing (Monday) – the bulk of those gains would likely be vs. JPY and CHF as risk-off trades are unwound.
·         GBPUSD would rally, but could face some hurdles above 1.50 particularly if markets bring a July Fed rate hike back onto the radar.
·         Limited positive impact for EUR outside of a higher EURCHF and EURDKK where Brexit hedges have been concentrated.
·         EURGBP would turn lower, towards our end-2Q target of 0.74.
·         USDJPY would likely rebound, but this is unlikely to end the yen’s cyclical strength yet.
·         High beta and EM FX would perform well.
·         In EM, PLN would benefit the most given its strong ties with the EU. The upper tolerance limit of authorities for EURPLN remains ~4.50 and fundamentals stay supportive.
·         Sell Bunds (targeting 25bps).
·         Bear-steepening of G3 yield curves should support our steepener trades in Asia.
·         Call Spreads on SX5E or SX7P.
·         EM equities could bounce by around 6%.

Leave:
·         10% sell off in GBP TWI at time of writing (Monday) – risks skewed to a larger sell-off especially given price action this week.
·         GBPUSD and GBPJPY expected to be the major causalities.
·         Short EURUSD and EURJPY.
·         USDJPY is likely to fall decisively below ¥100 and is technically vulnerable to a move toward ¥95. The MoF’s intervention probability would then increase.
·         Expect further pressure on EURDKK, but fully expect the peg to hold as the Danish central bank ramps up its balance sheet.
·         In EM, a leave vote would likely hit higher beta currencies, with TRY and ZAR being historically most sensitive on risk-off.
·         10% correction in EM equities. However, expect this to be temporary and provide a buying opportunity, especially for highly cyclical markets like Russia.
·         Our latest Fund Manager Survey shows positioning is still overweight in Europe.

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