Citi said in a note this week that it is scaling back risk across several macro trades following a sudden spike in volatility triggered by geopolitical developments.
Analyst Dirk Willer explained that “geopolitics usually causes very sharp, but short-lived, market disruptions,” but noted that the current market reaction across asset classes “feel like a VAR shock, and this can intensify before the situation ultimately stabilises.”
Willer said the firm’s immediate focus has shifted to risk control.
According to Citi, the team “cut some part of our risk, either where trailing stops were hit or where positioning is more stretched.”
As part of the adjustments, the bank closed its long EURUSD position, took profits on an emerging-market FX carry basket, exited HUF and BRL receivers, and unwound a trade that was long 30-year UK gilts against French OATs.
The note characterized the market reaction as “a proper VAR shock,” warning that although conditions could stabilize, “buying the dip just one day too early can create major losses.”
Citi said it is reducing exposure in areas where investor positioning has become crowded, particularly in emerging-market FX carry trades and in interest rate markets where expectations of imminent policy cuts have attracted heavy positioning.
The U.S. dollar has once again acted as a safe-haven hedge. Citi said the shift in terms of trade following Iran-related headlines has dominated other market drivers, pushing EURUSD to levels that breached the bank’s drawdown limits.
“We respect our drawdown limit and close our long EURUSD spot trade,” Willer wrote.
He added that while such shocks tend to be temporary, “these assets must be bought back at some stage,” once market volatility begins to ease.