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SocGen Recommend Long EURUSD Butterfly

EUR
  • SocGen recommend buying 10-d 6m EUR/USD butterflies, writing that while volatility is stable, markets might be more reactive to a wider range of scenarios.
  • They see the perception of EUR/USD tail risk captured by the appetite for OTM options via the cost of butterflies, which is now very low. In periods of tail risk, both kurtosis and butterflies are very elevated, pointing to a very attractive entry point to hedge unexpected events via EUR/USD butterflies.
  • Their reasoning cites the end of the global tightening cycle and an upgrade to global growth forecasts suggesting that the world is proving more resilient to higher rates than thought. However, markets face heightened uncertainty surrounding next year growth and the timing of 2024 rate cuts.

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