One look at cable this morning, which moments ago hit 1.47, continuing its unprecedented move higher, which already was the biggest intraday move sine 2008, and traders would be allowed to conclude that the Brexit vote had come and gone, with Remain winning by a wide margin.
After all, with less than a 100 pips remaining to Citi’s “extreme print” forecast in case of a Remain victory, the move today has practically priced in the entire outcome of the “remain” vote.
So what is Citi’s take? Well, in a word, CitiFX’s Brent Donnelly is speechless. Here’s why:
“It is stunning how quickly we have spun to the assumption that Remain is a done deal. I understand why, of course. But still. Stunning. So markets have moved considerably since Friday and there is interesting variation among the reactions. I created a chart of vol-adjusted performance of assets and you can see it in Chart 1. For ease of comparison, I flipped anything where risk on = down. For example, USDCAD or bunds, I show the reaction as a positive number not a negative number so that it is all apples to apples.”
Chart 1: Vol-adjusted performance of assets since Friday’s close
Citi’s takeaways:
- USDJPY = U-G-L-Y. It ain’t got no alibi, it’s ugly. A lot of people would have thought EURJPY or USDJPY would be the best trade on Remain (besides GBP, obviously). But USDJPY continues to trade heavier than a heavy thing. It is tempting to go short USDJPY here and stop above 105.55.
- Gold trades very well. I would have expected a much larger selloff.
- European rates have moved more than US rates, as one might expect.
- EURSEK has moved more than I would have thought. Could this be a sign of a major turn there?
- Crude and copper barely get a lift.
And the conclusion: “There is still potential for one more Brexit scare but time is running out and this referendum fear is looking set to fizzle a la Y2K.”
Unless, of course, the next poll to come out shows a lead for Leave in which case take all of the above and flip it.
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