Citi Doubles EUR/USD Bear Position by Investing.com

Investing.com – Citigroup doubled down on its bear position, citing recent disappointing data on European economic activity.

Data released earlier this week showed that business activity in the eurozone contracted sharply this month.

The preliminary HCOB reading, compiled by S&P Global, fell to 48.9 this month from 51.0 in August, below the 50 mark that separates growth from contraction for the first time since February.

The decline appeared broad-based, with Germany, Europe’s biggest economy, seeing its decline deepen, while France, the bloc’s second-biggest, returned to contraction after a boost from the Olympics in August.

The bank cited downside risks to growth in the eurozone, saying manufacturing remained a drag, while one-off boosts in services (eg the Olympics) could reverse.

“Furthermore, while declining manufacturing is a global problem, the US remains more isolated than Europe,” Citi said. “With markets anticipating Fed tapering after the September FOMC, we think attention may shift to the ECB being behind the curve, particularly if European data continues to weaken while US initial claims remain low.”

The backdrop is also one where US election risk should re-emerge as a headwind for the euro; Swing state surveys are tight (we expect additional pricing in the USD) and the next US jobs report isn’t until October 4th.

“We remain short EUR/USD on both spot and options,” Citi says, capping a benchmark spot rate of 1.1112.

At 07:35 ET (11:35 GMT), EUR/USD was up 0.1% at 1.1122.