SEK poised for extra gains near term – Danske Bank

Thomas Rosenlund, Analyst at Danske Bank, sees the Swedish Krona gathering further traction in the short term.

Key Quotes

“Comparing global economic surprise indices, it is noteworthy how Sweden has followed the eurozone index higher over the past month. In our view, the stabilisation in Swedish data vis-à-vis market expectations has been an important factor for sending EUR/SEK lower; indeed we have long argued that we would reach a point where too much negativity would be priced into the SEK catalysing a reversal”.

“While the global reflation theme in isolation also has aided the SEK, we still think markets underestimate the risk of Riksbank easing in December. We think the Riksbank will not only extend the QE programme in December but also cut rates. The former is widely expected and relatively SEK neutral or even positive if the focus is on tapering. However, the latter is not priced in and thus poses a headwind for the SEK that would send EUR/SEK higher short term”.

“In summary, momentum favours a long SEK position near term but we think the Riksbank meeting could prove a challenge in December and possibly open up for a favourable re-entry in terms of 2017”.