EUR/SEK could face downside risks – Danske Bank

Chief Analyst at Danske Bank Christin Tuxen assessed the current prospects for the Swedish Krona.

Key Quotes

“EUR/SEK temporarily broke above 9.80 on Friday. We have over the past few weeks been arguing that the balance of risk for EUR/SEK was to the topside but that it would make sense to shorten the cross on spikes towards 9.80 on the back of (i) technicals and stretched momentum, (ii) the gap in relative economic surprise indices between Sweden and the eurozone, (iii) the fact that the SEK KIX is 2.2% weaker than expected by the Riksbank and finally (iv) seasonality historically being SEK negative (positive) in October (November)”.

“That said, we acknowledge that the downbeat momentum in SEK has clearly increased the risk of a sustained EUR/SEK break above the 9.80 level, which would send the cross into unchartered territory”.

“As a result, we think it makes more sense to add a starter short EUR/SEK position spot outright and thereby await adding a full position until we get a clear trigger for a move lower. As potential triggers, we consider the Riksbank minutes (9 November) alongside inflation and housing data (both due on 14 November)”.