Good news for Greece is bad news for the EUR.
"We continue to believe that good news on Greece represents bad news for the EUR. The ECB’s quantitative easing programme (QE) is the key factor driving down the EUR, as the single currency is used as the key funding currency for FX carry trades.
"A ‘yes’ outcome should produce a relief rally in markets and encourage investors to again add to EUR-funded carry trades. This will drive the EUR lower. In contrast, a ‘no’ outcome may produce new risk reduction and a further unwinding of EUR shorts," BNPP projects.
A short EURJPY position also includes an element of a tail-risk hedge. Like EURUSD, EURJPY appears significantly overvalued according to 2y real rate spreads. A surprise ‘no’ vote would likely cause a sharp risk-off event similar to that of Monday morning (29 June). In this situation the EUR would drop sharply and the JPY would benefit as a safe haven, especially as the market is not currently running a net long JPY exposure," BNPP advises.
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