FxWirePro: Swedish fundamentals and hedging perspectives

Euro snatched back the gains in new year series after SEK's has traded strongly against euro through November and early December, gaining against almost all G10 currencies. Further gains from here will be more challenging, however, with EUR/SEK facing towards back in the 9.60-9.65 zones.

Despite euro's gains, the Riksbank brought in larger than expected rate cut by 15 bps in last meeting and also hints its forward guidance with hawkish note, the profile implying a material risk of unchanged monetary policy stance in H1-2016.

With highly unanticipated action by the Swedish central bank, we see EURSEK's upward potential going forward atleast upto above mentioned levels at 9.60-65 levels.  

We would like to bid the 1m tenor ATM +0.51 calls, compared to buying the underlying FX outright, the option holder is able to gain leverage since the lower priced calls appreciate in value faster percentage wise for every pip rise in the price of the underlying pair.

The maximum risk for this option strategy is limited to the extent of initial premium debited, no matter how low the underlying price is trading on expiration date.