16 Feb 2015
Bearish USD/SEK risk reversal – JPM
FXStreet (Barcelona) - FXStrategists at JP Morgan, share the trade setup for USD/SEK, viewing that SEK over-reacted to the Riksbank policy announcement and the certainty of a reversal now is high.
Key Quotes
“SEK is the second worst performing major currency against the dollar over the past year, falling 24%, a depreciation that only the hapless RUB has exceeded.”
“It might seem perverse therefore to recommend a short USD/SEK position the day after the Riksbank joined the negative-rate and QE fraternity."
“…if the Riksbank thought the case for aggressive measures was relatively strong, then it wouldn't have launched QE without the Q. At one-sixtieth the scale of the ECB’s QE programme when scaled as a percent of GDP, the 0.2% package announced by the Riksbank was lacking a certain shock and awe.”
“CPI data next week is pivotal for SEK’s near-term chances – in pricing even deeper rate cuts (RIBA rate futures prices a further 10bp cut to -20bp), the market seems to have forgotten the suggestion from the December CPI data of some upward progress in core CPI.”
“Overall, we believe that EUR/SEK has over-reacted to the policy announcement and since we also believe that EUR/USD could continue to squeeze higher in coming weeks (assuming that a Greek deal does get done), we prefer to position for a retracement in SEK through USD/SEK than EUR/SEK.”
“The risk-reversal skew is at its highest level in three years (2.25% over for USD/SEK calls), so provides reasonable leverage for a bearish tactical trade.”
“2-mo USD/SEK risk-reversal (long 8.15 put, short a 8.90 call). Paid 0.216% USD notional. Spot reference 8.42.”
Key Quotes
“SEK is the second worst performing major currency against the dollar over the past year, falling 24%, a depreciation that only the hapless RUB has exceeded.”
“It might seem perverse therefore to recommend a short USD/SEK position the day after the Riksbank joined the negative-rate and QE fraternity."
“…if the Riksbank thought the case for aggressive measures was relatively strong, then it wouldn't have launched QE without the Q. At one-sixtieth the scale of the ECB’s QE programme when scaled as a percent of GDP, the 0.2% package announced by the Riksbank was lacking a certain shock and awe.”
“CPI data next week is pivotal for SEK’s near-term chances – in pricing even deeper rate cuts (RIBA rate futures prices a further 10bp cut to -20bp), the market seems to have forgotten the suggestion from the December CPI data of some upward progress in core CPI.”
“Overall, we believe that EUR/SEK has over-reacted to the policy announcement and since we also believe that EUR/USD could continue to squeeze higher in coming weeks (assuming that a Greek deal does get done), we prefer to position for a retracement in SEK through USD/SEK than EUR/SEK.”
“The risk-reversal skew is at its highest level in three years (2.25% over for USD/SEK calls), so provides reasonable leverage for a bearish tactical trade.”
“2-mo USD/SEK risk-reversal (long 8.15 put, short a 8.90 call). Paid 0.216% USD notional. Spot reference 8.42.”