The BBC’s desperate shilling for Remain will come under increasing scrutiny as we exclusively reveal that the supposed ‘popular petition’ for a second referendum – wholly illegal and unworkable, and unprecedented in British history.
A petition demanding a secondary referendum on UK’s membership of EUhas reached 3 million signatures, signaling the backlash against Brexit vote.
According to the concerns over a few groups who don’t want to leave EU, Thursday’s referendum has been an evidence of just 71% turnout with 51.9% voting to leave the EU against 48.2% to remain is not convincing.
As a result, the petition calls for the government to make this outcome null when the majority was less than 60% and the turnout of less than 75%.
However, as per the OTC market positioning, the implied volatility may be stable or to shrink in 1-3w tenors, unlikely to spike off.
But positive risk reversals have been added in case of many major pairs such as GBPUSD, EURJPY, EURCHF and USDJPY, which implies that the hedging sentiments may turn around the table.
We suspect that the offsetting forces above, and a period of relatively calm central bank activity, will push FX volatility down in H216.
This could resemble H1 14: once the Fed’s taper tantrum of 2013 had been digested, while the ECB and the BoJ were on hold1, realized and implied FX vols crashed.
Both the ECB and BoJ face strong internal resistance to deeper rate cuts, not least from banks and insurance companies.
The euro zone economy is currently running above potential – a relative bright spot – and the ECB is in wait-and-see mode. Japan is shifting from fiscal tightening/monetary easing in 2015 to fiscal expansion now and, we reckon, monetary status quo.
The Fed will not want to upset the apple cart. FX volatility, of course, is unlikely to spike after the results of UK referendum. In the Brexit scenario, we would expect cable to drop below 1.30, probably taking EUR/USD below 1.10 – this would push vols sharply higher initially. If the UK decides to stay, we will recommend selling FX. You can make out from the above nutshell as to how the IVs are reducing as compared to that of IVs in last one month.
We show in a dedicated section that it is optimal to do so through a basket of vols rather than a specific pair. Selling G10 FX volatility is particularly tempting on a relative basis as we foresee for a temporary pullback in FX vols in H216 to be precise.
The material has been provided by InstaForex Company – www.instaforex.com