FxWirePro: Uphold longs in Swedish Krona versus EUR and JPY via cash, append optionality against NZD

SEK has been through the mangle this week and we narrowly avoided being stopped in EURSEK. The pressure on the currency stems more from positioning than a re-pricing of monetary policy – indeed, fair-value for EURSEK has been anchored between 9.40-9.50 all year even as the Riksbank has extended QE and lowered its rate path.

The upshot is that SEK is becoming de-anchored, albeit the currency still; has some way to fall to equal the undervaluation achieved last December when EURSEK exploded to 10.00 (at that stage the pair was 3.5% overvalued compared to 2% at present – refer above chart).

Next week is the key with the release of April CPI and the minutes from the April meeting at which the Riksbank board was split down the middle on the decision to extend QE. Swedish CPI is subject to similar adjustment problems around the Easter holidays as the Euro area data and so we wouldn’t exclude the possibility that inflation could rebound by more than the Riksbank or consensus expects (both put project a rise in CPIF from 1.5% to 1.8% whereas Euro area CPI jumped by four-tenths). The minutes are important to gauge the extent of the disagreements on the board and the appetite for even further easing.

Trade tips:

Bought SEKJPY at 12.71 on April 265. Stop at 12.40. Marked at +0.76%.

Short EURSEK at 9.6995.Marked at 0.06%.

Long a NZD put/SEK call, strike 6.10, expiry May 23. Paid 1.47%, marked at 1.07%.