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Italian Bank Customer Snaps Up U.S. Dollar Calls

Banca Popolare di Sondrio has sold U.S. dollar calls/Japanese yen puts to a customer following the firm's prediction that the yen will weaken against the dollar in the coming months as Japan's economy continues to weaken. Carlo del Grosso, head of trading in Lugano, Italy, said the firm sold two dollar calls in the trade, each with a notional size of USD15 million, which mature in December and June, respectively. Both options are struck at JPY120. Del Grosso declined to name the customer.

The firm believes the yen will weaken to at least JPY125-126 by June. He added that the Bank of Japan's latest attempts to weaken the yen and bolster Japanese exports have worked. On the dollar side, del Grosso believes the dollar will strengthen because the depreciation caused by speculation about a conflict with Afghanistan will not have a lasting impact on the foreign exchange market. "If wars are happening of course the dollar/yen could go lower, that is the risk, but if you see a quick resolution to the crisis, it could be favorable for the dollar," he said.

The trade was executed late last month when spot was around JPY119. The yen was trading at JPY120.34 Tuesday, its lowest level in nearly a month. Del Grosso said the bank is entering an offsetting position, but declined further comment.

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