The Riksbank surprised big time, and changed the near-term playground for the krona.
Consequently, we have decided to revise our forecast. The 1M target is set to 9.40, 3M 9.20, 6M 9.00 and 12M 8.80.
Unexpected but fair rally in EUR/SEK
Pricing in the option market indicated that the Riksbank would bring a messy day in the SEK market. Correctly so. Again, it was Norges Bank who did the foreplay. You could certainly argue that the mere fact that the EUR/SEK had rallied some 20 figures on what Norges Bank did and what the Riksbank might possibly do, should have limited the upside potential in the EUR/SEK on a soft Riksbank message – the currency market had, contrary to the money and fixed income market, already pre-traded on such a scenario. But no.
The unexpectedly large cut and the adjustment of the rate path sent the EUR/SEK higher more or less to the magnitude that we had sketched beforehand in our ‘low-probability scenario’. We believe that the move from 9.20 to 9.38 (intra-day high) was reasonable in relation to re-pricing in the money market given the ‘beta’ in our short-term models. That said, the EUR/SEK appears somewhat overbought relative to rates-implied fair value.
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