Following the Brussels bombing, the pound weakened alongside the euro. This was due to the growing fear of a “Brexit”. Nevertheless, a Brexit could also hurt the euro. Here is the explanation from Bank of America Merrill Lynch: Here is their view, courtesy of eFXnews: We argue that the EUR is underpricing the potential economic disruption related to Brexit and shorting EUR/USD is a cheaper way than shorting GBP/USD to hedge for such a possibility. If the UK does exit the EU, we think it is unlikely to only affect the UK, it will likely also affect the Eurozone through both direct and indirect channels. The vol spread between GBP/USD and EUR/USD is at historically high levels. However, our analysis suggests EUR could also weaken if the market becomes more concerned about the possible implications of Brexit ahead of the referendum and potentially weaken more if the UK does exit the EU. In our view, the currently high level of EUR/USD makes shorting the cross even more attractive to hedge for a Brexit scenario.We have argued the market has not fully appreciated the implications of the ECB’s aggressive policy easing last March. We expect the Fed to hike twice this year, compared to market expectations for one hike, as US data continue improving and inflation is picking up. The Eurozone data have been losing momentum, while the US data have been gaining momentum, supporting a weaker EUR/USD (Chart 9 and Chart 10). Inflation expectations have been falling in the Eurozone, while they increased in the US recently (Chart 11). We expect EUR/USD to reach parity by the end of the year and would view the currently high level as a good one to sell ahead of the EU referendum. Shorting the Euro may be preferable from shorting GBP to position for Brexit risks also because of what may happen if the UK does stay in the EU. In such a scenario, which is our baseline, we would expect GBP to appreciate sharply as uncertainty dissipates. However, we would not expect the Euro to appreciate by much, as it is not pricing the same level of uncertainty currently. Indeed, we would expect GBP/USD to gradually appreciate to 1.62 in the longer term (end-2017), assuming Brexit uncertainty disappears and the BoE starts hiking rates. Our long-term EUR/GBP projection is 0.68, as we expect the ECB monetary policy to diverge from that of the BoE. For lots more FX trades from major banks, sign up to eFXplus By signing up to eFXplus via the link above, you are directly supporting Forex Crunch. Yohay Elam Yohay Elam Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts. Yohay's Google Profile View All Post By Yohay Elam Forex News Today: Daily Trading News share Read Next End of Quarter Turmoil – Live Market Open from 7:00 GMT Yohay Elam 7 years Following the Brussels bombing, the pound weakened alongside the euro. This was due to the growing fear of a "Brexit". Nevertheless, a Brexit could also hurt the euro. Here is the explanation from Bank of America Merrill Lynch: Here is their view, courtesy of eFXnews: We argue that the EUR is underpricing the potential economic disruption related to Brexit and shorting EUR/USD is a cheaper way than shorting GBP/USD to hedge for such a possibility. If the UK does exit the EU, we think it is unlikely to only affect the UK, it will likely also affect the Eurozone through… Regulated Forex Brokers All Brokers Sponsored Brokers Broker Benefits Min Deposit Score Visit Broker 1 $100T&Cs Apply 0% Commission and No stamp DutyRegulated by US,UK & International StockCopy Successfull Traders 9.8 Visit Site FreeBets Reviews$100Your capital is at risk.2 T&Cs Apply 9.8 Visit Site FreeBets Reviews$100Your capital is at risk.3 Recommended Broker $100T&Cs Apply No deposit or withdrawal feesTrade major forex pairs such as EUR/USD with leverage up to 30:1 and tight spreads of 0.9 pips Low $100 minimum deposit to open a trading account 9 Visit Site FreeBets ReviewsYour capital is at risk.4 T&Cs Apply Visit Site FreeBets ReviewsYour capital is at risk.5 Recommended Broker $0T&Cs Apply Trade gold, silver, and platinum directly against major currenciesUp to 1:500 leverage for forex trading24/5 customer service by phone and email 9 Visit Site FreeBets ReviewsYour capital is at risk.