EUR/SEK stays wary on the ECB – Danske Bank

Chief Analyst at Danske Bank Arne Rasmussen gave his views on the cross in light of the next ECB meeting.

Key Quotes

“In FX markets, the SEK has erased some of the previous sessions’ losses. Fundamentally, we think EUR/SEK had moved a little too high given the move in traditional underlying drivers such as relative interest rates”.

“Adding to this, we think markets have become a little too optimistic on the EUR and, with the European business cycle about to turn, we think equity flows will become less supportive for EUR crosses”.

“This said, next week’s ECB meeting will be pivotal. Our feeling is that markets expect the Governing Council to modify its forward guidance (‘or lower’ phrase), which alone suggests less upside to the EUR if proven right”.

“However, given the substantial event risk, one could consider playing a long SEK position instead via a short NOK/SEK position, which would ‘hedge’ the EUR-leg”.