Investing.com – The European Central Bank will hold its final policy-setting meeting later this week, and Citigroup is recommending selling any rallies in the euro around this key event.
Markets are pricing in an easing of around 49 basis points from the remaining two ECB meetings this year, which could limit moderate repricing around Thursday’s event, Citi analysts said in an Oct. 15 note.
“We see room for a tactical recovery in the EUR around Thursday’s ECB meeting, which we would like to see fade into November as the US election risk premium materializes,” Citi said.
That said, “we like to see any subsequent rallies in the EUR fade as we approach November and the US election risk premium becomes better priced.”
There are indications that this is unfolding, the bank added, as the EUR appears undervalued based on its short-term fair value model and as Citi’s FX Positioning data suggests the need to add short positions in the EUR.
“But our broader FX election basket is still assessed as undervalued versus the Trump betting markets, and we remain short EURUSD in both spot and options,” Citi said. “We would like to sell any retest of the 1.10 double top neckline – any break above that risks a move towards our adjusted stop of 1.1050, but if that resistance holds we have more conviction of a move towards our (and the double top neckline ) ) target of 1.08, with possible exceedance towards 1.07.”
At 05:25 ET (09:25 GMT), the price was trading mostly flat at 1.0892, down almost 2% from the past month.
