EURSEK’s Steep Rise May Prompt Pause For Thought
The weakness of the Swedish krona versus the euro prompted both the Netherlands’ ING and Denmark’s Danske Bank to write on Wednesday morning that EURSEK could move above 10.00. Traders may be aware that the Swedish krona has only been that weak versus the euro on two earlier occasions, once during the Global Financial Crisis and once, briefly, in November 2016. While it might be too soon for traders to think about shorting EURSEK given the speed at which the krona has given ground to the euro, traders might also be reluctant to be too long of euros versus the krona at such elevated levels. It could be argued, of course, that a further impulse to the topside could be derived from traders perceiving that any surviving short EURSEK positions might now only be flushed out on a break above 10.00 but if that’s the case traders could feel the need to be fleet of foot if playing the pair from the long euro side. In short how many traders are going to be that comfortable being long in EURSEK at levels only seen at two other times? There’s also the added fact that while Swedish headline inflation, which helped trigger the current SEK weakness, disappointed, inflation expectations in Sweden for a year hence remain at 1.9 per cent, in line with the Swedish central bank’s own forecast. Additionally the slide in the SEK can only be an upside risk to price inflation in Sweden through the imports channel. Sweden’s central bank might find continued SEK weakness somewhat unpalatable. Traders might wonder how much further the EURSEK can realistically rise even if there’s no particular reason why the rise should dramatically reversed in coming days.
Written by Neal Kimberley, External Currency Analyst.