FX Convictions – Enter SEK long versus EUR

by: Georgette Boele

DISCLAIMER: This report has not been prepared in accordance with the legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead. This report is marketing communication and not investment research and is intended for professional and eligible clients only.

In this publication: We open SEK long versus EUR. The SEK is the most undervalued currency in G10. We expect a change in Riksbank’s bias around the turn of the year leading to a stronger SEK

160916-Enter-SEK-long-versus-EUR.pdf (237 KB)

Enter SEK long versus EUR

In the period July 2013 to July 2015, the krona weakened by 12% on a trade weighted basis. Since then it has stabilised. Among G10 currencies, the Swedish krona is the most undervalued currency on the basis of PPP. It is roughly 27% undervalued versus the US dollar and 21% undervalued versus the euro. We expect the Swedish economy to continue to outperform the eurozone economy in 2017. In addition, we expect that inflationary pressures will continue to build resulting in inflation reaching the 2% target earlier than forecasted by the central bank. This should trigger a change in the bias of the Riksbank, signalling a less accommodative monetary policy ahead. All-in-all this would be supportive for the krona. Therefore, we have raised our krona forecasts (lowered EUR/SEK). Our new year-end forecasts for EUR/SEK for 2016 and 2017 are 9.4 (was 9.5) and 8.6 (was 9.0), respectively (see our Sweden Watch – Change in policy bias soon?). We have added short EUR versus Swedish krona to our high conviction list with a stop loss at 9.75.