LIVE MARKETS-Citi recommends shorting euro vs dollar via options

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CITI RECOMMENDS SHORTING EURO VS DOLLAR VIA OPTIONS

Citigroup sees scope for a weaker euro against the dollar in the coming months and recommend playing the theme via a euro-dollar put spread, it said in a note late on Friday.

Citi's view is somewhat out-of-consensus, with most FX strategists expecting a slightly weaker dollar over the coming year.

The U.S. bank expects an acceleration in the U.S. economy in the first half of this year, which should remain the dominant driver of the dollar.

Meanwhile, they believe that the good news for the euro is largely priced, and with the ECB likely to keep rates unchanged through 2026, euro-dollar will be driven more by the dollar side.

"While we would still like to see clearer indications of a bottoming labour market and/or a bullish DXY breakout (above 101) for a long USD spot trade, low vol and increased conviction in Fed independence lead us to initiate a long USD structure with attractive leverage," Citi said.

The U.S. bank said it was too early to enter a spot euro-dollar short as "USD bottoming processes are choppy affairs".

"This keeps U.S. cautious on positioning until we see clearer signs of a US re-acceleration," they said.

Citi recommends buying a 9-month EUR/USD 1.14/1.10 put spread for 46 basis points, as they see the euro potentially slipping towards $1.10 in the summer. It was last at $1.1684.

(Samuel Indyk)

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