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The direct negative effects of a disorderly Brexit on the economies of Poland, Hungary, the Czech Republic, and Romania are manageable - depending on the country, only about 4-6% of exports go to Great Britain. The so-called second-round effects of a "no-deal" for the Eastern European economies, however, are likely to become more serious given that a weakening of German or eurozone growth as a result of the UK's Brexit should have a significant negative impact on the growth rates of Poland, Hungary, and the Czech Republic.
In the case of Romania and Poland - with the two largest groups of labor migrants in the UK - there are also extensive money transfers back home, the value of which depends on the exchange rate of the pound. Indeed for the CEE currencies, a disorderly Brexit is a risk factor that is not only based on the deteriorating fundamental environment.
Rather, the increasing risk aversion is likely to have a negative impact, too. A first glance of how quickly the mood can suffer in the wake of the Brexit spectre could be seen at the beginning of this week when HUF, PLN, and CZK had to take their cue and even the RON came under selling pressure.
Positive carry from selling 3M delta- hedged skews is attractive in USDHUF and USDPLN. USDSEK vs EURSEK vol spreads are a well-priced, positive carry expression of a constructive stance on European FX vol. Long USDSEK vs short EURSEK vol spreads are a carry friendly way of owning FX vol from multi-year lows.
Add longs in USDPLN at spot levels of 3.8935 for the targets of 3.9680 with the strict loss of 3.8252 levels. Courtesy: JPM & Commerzbank
