Citigroup (NYSE: C) ended a bet that the euro will rise against the dollar as the E.U. failed to agree on a plan to shore-up the debt-ridden country of Greece.
Citigroup lost 2.75% on its bet. Citigroup strategist Todd Elmer in New York and London-based Michael Hart wrote in an e-mailed note dated on Friday that the timing of the trade was “in-opportune”. The trade finalized no Thursday, the same day that Goldman Sachs Group (NYSE: GS) recommended dropping a similar bet which led to a 2.8% loss.
The declining “sentiment that began late last week has gathered pace in more recent trade, feeding a rise in risk aversion,” the Citigroup analysts wrote. “This stems from continued market unease on fiscal turmoil in Greece and other peripheral nations.”
France and Germany have largely been able to agree on the scope of any aid package for Greece as concern that the debt crisis could spread to other nations such as Portugal, Iceland and Spain.
“Given that positioning looks ever more stretched, this could yet drive a relief rally in the euro,” the Citigroup analysts said. “Still, in the light of the adverse price action, we stopped ourselves out of our long euro-dollar position this week.”
Goldman Sachs entered its trade about two weeks ago and finally stopped the bet on March 24th, according to a report from Bloomberg.
“We have clearly underestimated the impact on the euro from the European sovereign crisis and perhaps also from the broader macro adjustment that it portends,” they wrote. “These political headwinds currently matter far more for the euro than the cyclical factors.”
