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After the UK voted out, there is room for the downside on EUR/USD. Some see 1.05 and NAB sees even lower levels, and they explain:

Here is their view, courtesy of eFXnews:

If global equity markets remain under extreme pressure and measures of market volatility/risk aversion remain elevated, the Australian dollar is like to weaken further in coming days, implying risk that the 2015/2016 year-to-date lows just above 68 US cents are retested.  The Australian’s dollar’s negative correlation with increased global market risk aversion is time-tested. The August 2015 and January 2016 cycle lows in the AUD/USD rate coincided with two periods of (initially China-related) global market stresses that saw the VIX measure of US stock market volatility trade at elevated levels. Under circumstances where concerns about the existential risk to the EU/Eurozone come to the fore, we would envisage similar pressures across global stock markets and a response in the currency similar to the August 2015/early 2016 experience.

If instead global market fall-out from today’s referendum is contained and risk sentiment stabilises, the Australian dollar is similarly likely to stabilise – above 70  cents – while likely remaining contained below the 75 cents level. Comparable volatility is to be expected in the New Zealand dollar. For the British Pound, there has been some modest reversal of the sharp overnight losses which has seen GBP/USD regain nearly 8 cents of the 17c which it lost in the space of just 5 tumultuous hours. We expect this pair to remain pressured as the shifting sands of UK politics seem a poor foundation upon which to build a sustainable rally.


Once the dust settles after the weekend inquests, we look for GBP/USD to trade down to and possibly through 1.30. Amongst other major currencies, a larger fall in the Euro than seen so far on Friday is to be expected in circumstances where expectations for a broader fracturing of the EU and doubts about the long term survival of the single currency become more prominent.

This would suggest the EUR/USD rate falling into the 1.00-1.05 area.  This in turn suggests that the US dollar will be supported more broadly, even though markets have quickly responded to Friday’s events by pricing out any risk of the Fed lifting interest rates again anytime soon. The prospects for the Japanese Yen materially weakening in coming weeks and months are also diminished.

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