With much of the currency focus surrounding the EU referendum falling on the British pound, it is easy to forget other crosses will feel some heat.
The world’s largest currency pair - the EUR/USD - is no exception and there are in fact already suggestions that the pair's recent inability to crack above 1.14 could have something to do with referendum fears.
The euro recently spiked towards 1.14 but failed at this level while against the safe haven currencies, such as the yen, we have seen notable moves lower suggesting money is flowing out of the euro ahead of the referendum.
But just how far will the euro move against the dollar on the outcome of the referendum?
Enrique Diaz-Alvarez at Ebury - a contributor to Bloomberg’s FX forecast polls - says that in the event of a ‘remain’ vote, and based on the probabilities priced in the markets for an exit, he would expect a rally in the pound of roughly 3-4% against the US Dollar.
“The reaction of the EUR/USD rate to the outcome of the referendum is even harder to predict. This exchange rate has moved about 20% as much as GBP/USD in reaction to the most recent poll releases,” says Diaz-Alvarez.
Extrapolating these moves, Ebury say they would expect EUR/USD to drop 2% in the event of a Brexit and rally by 0.5% - 1% if, as most in the market expect, the Remain vote wins the day.
Citigroup have also taken a stab at predicting potential euro-dollar movements saying the pair is seen tracking 50% of sterling’s moves into the EU referendum and immediately thereafter.
However, the moves forecast by Citi are certainly greater than those issued by Ebury:
“If our CitiFX Strategy team’s calculations regarding the elasticity of EURUSD movements to GBPUSD are correct (being roughly 50% after taking out the Fed & US impact), a potentially 2.5-3% gain should Remain win translates to a rally to the 1.1700 major resistance area from current levels around 1.1360 whereas a 5-6% move lower in EURUSD should Leave win would likely see the 1.0700 area tested.
Ahead of the referendum however, major resistance at the May 5 high of 1.1495 is likely to cap further gains whereas near term support comes in at 1.1303 (55 day MA) followed by 1.1285.
ING: Euro Pressured, Safe European Currencies Bought
It’s not just in EUR/USD where the action is likely to reside, research shows other European currencies appear to be reflecting a desire by investors to reduce exposure to the euro in case of Brexit.
“As EUR/JPY breaks to new lows and demand appears to build for some of Europe's safe haven currency, it looks as though the broader FX market is starting to take the risk of Brexit more seriously,” notes Chris Turner at ING in London.
EUR/JPY has broken to a new low for the year today, and Turner says he is seeing demand developing for the European safe havens of CHF, DKK and CZK.
Given the BoJ has been warned off FX intervention by US Treasury, the JPY is substantially out-performing – with little prospect in our opinion of a sustained FX intervention campaign from the Japanese.
“Those intervention restrictions do not apply within Europe, where Danish, Czech and most likely Swiss authorities are intervening to buy EUR and sell local currencies. In Denmark, having amassed FX reserves in late 14/15, the DNB very quickly sounded the all-clear by heavily selling FX from March 15 onwards and in January hiking DKK rates. More recently, however, EUR/DKK is back down to its late 14 lows (when ECB was mulling the launch of QE) and DNB has been forced to buy FX again,” says Turner.
In Switzerland, CHF sight deposits are up CHF27bn YTD and FX reserves recently hit a new high of CHF600bn.
And CNB continues to intervene to support the 27.00 EUR/CZK floor. We estimate it bought CZK15bn worth of FX in May and may need to do more this month.
“We estimate that several months of CZK50bn pm intervention could force the CNB into Plan B – negative rates,” says Turner.
That prospect of negative rates has started to see 12m forward points move wider again.
“Building demand for European safe haven ahead of the Brexit referendum could see these forward points move wider still – and the SNB contemplate a Plan C, such as reducing the huge exemption on sight deposit charges (20 times minimum reserves) when it meets to set rates on June 16th,” says the ING analyst.
Euro Charts Remain Supportive Despite EUR/USD's Recent Capitulation
The US dollar has staged a comeback over the course of the past 24 hours - with analysts not quite sure what to attribute the move to.
EUR made a fresh high of 1.1415 before unexpectedly plunging to close near the day’s low at 1.1313.
"The recent upward pressure has all but disappeared and a break of the major 1.1300 support could lead to further losses towards 1.1250. Resistance is at 1.1355 and the 1.1415 high is unlikely to come under threat from here," says Quek Ser Leang, an analyst with United Overseas Bank in Singapore.
However, Ralf Umlauf, an analyst with Helaba Bank in Frankfurt is a little more constructive on the euro's outlook from here:
"The euro managed to go as high as 1.1429 but failed to overcome the resistances at 1.1449 and 1.1465. Regardless of the latest decline the indicator situation in the daily chart remains friendly and as there is a lack of fundamental stimuli in favour of the dollar we continue to see chances of a resilient trend. Our favoured trading range: 1.1250 – 1.1449."