Euro calls rally to highest since 2009 as Draghi defied

By Inyoung Hwang

The options market isn’t convinced European Central Bank President Mario Draghi will succeed in his aim to weaken the euro.

The cost of bullish wagers on the Euro Currency Trust rose to the highest level since September 2009 relative to bearish bets last week, according to data compiled by Bloomberg. The U.S.-listed exchange-traded fund that tracks the euro versus the U.S. dollar has slipped 0.1 percent since Draghi unveiled stimulus measures for the euro-area economy.

Draghi said in May that the strong euro is “a serious concern.” On June 5, the ECB cut its deposit rate to minus 0.1 percent, becoming the first major central bank to take one of its main rates negative. The ECB also opened a 400 billion-euro ($544 billion) liquidity channel tied to bank lending. That had little effect on the 18-nation shared currency as Federal Reserve Chair Janet Yellen affirmed a commitment to hold the main U.S. rate near zero for a considerable time.

Investors pared bearish bets amid uncertainty over what the ECB may do next to boost the region’s economy, according to Hidetoshi Honda of Mizuho Corporate Bank. Short interest on the euro ETF out of shares outstanding has dropped to 72 percent from 96 percent on June 2, according to data from research firm Markit.

“There’s not much left on the table for the ECB,” Honda, a currency strategist at Mizuho in London, said by phone. “We’ve been trading on this divergence of central bank policies for a while. We expect the Federal Reserve to tighten, continue tapering and hike rates soon. In the euro area, a rate hike is quite a distance away. Most of that has been priced in.”

US rates

The euro increased 0.3 percent to...