UK polls impacting the G10 space in a big way – ING

Research Team at ING, suggests that in the G10 space, they particularly underscore the NOKs vulnerability (the second most vulnerable G10 currency after GBP, based on their analysis) as the decline in oil price further weighs on the currency.

Key Quotes

“As long as the current environment does not lead to the EMU existential crisis, EUR should do “relatively” well. As was the case overnight - although falling against USD it should do better than most of European currencies, bar CHF, and higher beta G10 commodity currencies (with an exception of CAD). The lack of a pronounced EUR sell-off provides a degree of cushion to other European currencies (both in the G10 and EM space) and should limit their sell off compared to the 2010-2012 period of EMU existential crisis. However, these currencies should still be under pressure against USD (and JPY)

Regarding the EUR itself, many things have changed since the 2010-2012 period of the EMU crisis. EUR/USD is cheap rather than expensive (around 10% based on our BEER fair value model), the EZ current account position improved and the ECB gained credibility with market participants believing it will do “whatever it takes” to save the EUR.

Importantly and unlike in 2010, SEK and NOK are not seen as relative European safe havens given the lack of the EMU crisis (which would weigh on EUR) and the dominance of the global risk off (which weigh on both Scandinavian currencies)

Expect downward pressure on EUR/DKK to build. EUR/DKK forward points in particular should decline materially.

CEEMEA FX

EUR appreciating against CEE FX as these currencies are more sensitive to risk (HUF and PLN in particular). We see PLN as the most vulnerable among the CEE4 (the EUR/PLN 4.5120 is the key resistance level to watch this morning), while CZK should be the relative outperformer. This is in line with our previously expressed view that short PLN and HUF positions / long USD is a more optimal strategy to position for Brexit than short EUR/USD positions. In the relative value space, HUF should do better than PLN

In the CEEMEA space, ZAR losses should lead those of TRY as the lira exerts lower beta to risk (which is the key driver as this point). RUB trading should be highly influenced by the fall in the oil prices (given the tight correlation between the two),

EM Asia FX

EM Asia currencies outperforming other EM regions given their lower beta to risk and lower direct exposure to the UK.

LatAm FX

In contrast, LatAm FX should struggle given the high sensitivity of most of the local currencies to risk. MXN in particular looks very vulnerable.

Volatility

Expect implied FX volatilities to remain very elevated as uncertainty prevail.”