We see EUR/SEK trading within a range of 9.30-9.60.
Fair value implied by relative rates and QE is a bit below 9.40
We sell EUR/SEK for a target of 9.30
Strategy
We argue that EUR/SEK has established a higher range which we define as 9.30-9.60. This assessment is based on “fair value” implied by relative rates and relative bond-buying programmes (QE) being close to 9.40 and the view that the Riksbank will stay on hold in September. Furthermore, the fundamental misalignment has become increasingly stretched and we think the market is exaggerating the risk of currency interventions under current circumstances. Real macro data has all but confirmed that Sweden is doing fairly well, outgrowing trend and most of its peers. This is a reminder that EUR/SEK is fundamentally very expensive. We see EUR/SEK in a 9.30-9.60 range. Hence, the current level of EUR/SEK offers good value for a downside move.
Fundamentals
The Riksbank’s rate cut and expanded QE programme in early July set the trend for EUR/SEK this summer. A low inflation reading for June and downward pressure on energy prices and, with China, growing concern about the global economic (and thus inflation) outlook have weighed further on the krona. The upside surprise to July CPI which sent EUR/SEK towards 9.40 has been countered by risk off and a stock market selloff.
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