Citibank Citi has highlighted the potential for increased political risks in Europe as Germany’s regional elections approach on September 1. According to European Citieconomics, the elections could lead to major shifts in regional policies, potentially destabilizing the national coalition, changing national fiscal policies, and causing Germany’s policies to be reoriented within the EU and internationally.
Financial markets have shown increased sensitivity to election-related risks this year. Similar events, such as the recent French elections, have already affected the euro, depreciating the euro against the US dollar and the euro against the Swiss franc, in line with widening spreads.
These developments suggest that the upcoming German elections may also lead to market volatility, particularly affecting foreign exchange rates.
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Citibank’s analysis suggests that uncertainty surrounding the election results could coincide with the seasonal appreciation of the US dollar and increased volatility ahead of the US elections.
The company notes that the DXY, an index that measures the strength of the dollar against a basket of currencies, continues to find support, while there is already a trend for leveraged positions based on selling on the US dollar and buying on the euro.
In light of these factors, Citibank maintains its cautious stance on the euro and adopts defensive positions against potential downside risks. The company remains positioned short on EUR with a two-month EURUSD put option with an strike price of 1.08 (reference spot price at 1.1121 as of 9:16 a.m. EST, August 28) and holds a short position on EUR/GBP in the spot market (reference spot price at 0.8413 as of 9:16 a.m. EST, August 28).
This article was translated with the help of an artificial intelligence program after an editor’s review. For more details please refer to Banha Terms and Conditions
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