### POV: OPTIONS MARKET ILL PREPARED....>

EURO-DOLLAR: ### POV: OPTIONS MARKET ILL PREPARED FOR FURTHER EUR RALLIES

-Hedging costs for EUR/USD puts remain comparatively expensive, evident in the

EUR/USD smile curve skewing more heavily toward puts over the past few weeks and

months (EUR/USD smile was broadly symmetrical as recently as late April). But,

this hasn't put off hedgers, with put trades outnumbering calls by 20% since

Monday's open, according to DTCC data.

-This places options markets at odds with spot as EUR/USD looks to clear $1.17

and erase the ECB-influenced slide from June 14th. A further recovery in EUR

will likely result in renewed interest in short-dated EUR/USD calls (1m 25d call

vol touched the lowest levels today since mid-May) as a method to gain exposure

to any EUR upside.

-With ECB policy on the backburner for now, spot markets should continue to

focus on US-EU trade tariff threats and, in particular, the spat over European

car exports (which saw the Eurostoxx Autos & Parts Index drop 10% in as many

days) which should keep FX markets volatile over the summer.