Brexit would be ‘catastrophic’ but may help the dollar: Trader

In one month, the United Kingdom will hold a key referendum to decide if the country will stay in the European Union. While the world is watching and worrying about the result, some traders are looking to the currency market to help them cash in should the so-called "Brexit" really come to pass.

"What I think the currency impact will be is that actually, [investors] will flow to the dollar from every angle, because of course I think the British pound is going to weaken substantially," said Boris Schlossberg, managing director of FX strategy for BK Asset Management.

"It could also create an enormous amount of pressure on the euro, because the next question is going to become, 'If the UK is out, who's going to be next?' So the safe haven trade to the dollar will probably be the strongest trade we see from this," Schlossberg said Monday on CNBC's "Trading Nation."

Read MoreFed's Williams sees US rate hikes despite Brexit risk, more in 2017

Longer-term trends favor buying the dollar against the pound as well. Oppenheimer technical analyst Ari Wald points out that the British currency has been slipping over the past few years.

"The pound's been making lower highs since 2014, still below a falling 200-day moving average," he said. "So for now I think before we get more stabilization, I think you play for the breakdown of 30-year support below $1.40."

Beyond the currency impacts, traders and analysts warn that a Brexit could badly damage global markets, especially since the UK could set a precedent for other European countries to follow.

"It would be catastrophic from every possible angle, because it will create chaos the likes of which we've never seen before," said Schlossberg. "If they leave, they open up a Pandora's Box for everyone else including Italy — which is on the verge of tipping into a recession right now — to want to go leave."

"They will basically untie the whole European Union by creating this one act of defiance," he added.


Trades to Watch

Trader Bios


Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

Read more