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22 Apr 2013
Forex Flash: Sell EUR/SEK - Nomura
FXstreet.com (Barcelona) - Nomura strategists Matthew Slade and Geoffrey Kendrick note that they recently commented on the strong performance of SEK since the start of the year and have been looking for an opportunity to get long.
One of the factors they covered was the improvement in Swedish macroeconomic data being the dominant influence behind the move lower in EUR/SEK. Furthermore, the Swedish economy is in a better position than the rest of Europe to benefit from a pickup in economic activity. They write, “Consumer confidence has recovered since the start of the year which has seen an improvement in household consumption expenditure. Furthermore, household savings have been higher over the past few years and we now expect this to decline given the improvement in consumer sentiment. In addition, equity markets continue to perform well which should see SEK well supported at these levels.”
They note that the decision by the Riksbank at last week´s meeting to revise the rate path downwards took them by surprise given the improvement in economic activity which is domestically driven. The announcement by the Riksbank drove EUR/SEK back up to levels seen in February. Today´s development has seen Deputy Governor Lars E.O. Svensson announce that he will leave the Riksbank on May 20th when his period of office expires. They write, “Lars Svennson has been the most dovish executive board member this year, voting for a 50bp cut at the February and April meetings. While Deputy Governor Karolina Ekholm advocated a 25bp cut at both meetings this year, the remaining four Riksbank Executive board members do not share these dovish views and voted to keep rates unchanged.”
As they have noted previously, the key difference they see in opinion rests on the risk of further inflated house prices and higher household debt, which would likely occur if rates were cut once more. Thus, they feel that the departure of Mr Svennson sees the Riksbank lose its most dovish member and therefore reduces the probability of a cut later this year. They recently updatyed their framework of analysis for SEK, highlighting the importance of Swedish and Eurozone rates with regards to EUR/SEK.
They finish by commenting that the departure of Mr Svennson has weighed on EUR/SEK this morning and provides us with a good entry point to get short. The next two weeks sees the release of important economic data for Sweden, which we expect will reflect continued improvement in the domestic economy. They are selling EUR/SEK at 8.51, with a target of 8.25 and a stop at 8.60.
One of the factors they covered was the improvement in Swedish macroeconomic data being the dominant influence behind the move lower in EUR/SEK. Furthermore, the Swedish economy is in a better position than the rest of Europe to benefit from a pickup in economic activity. They write, “Consumer confidence has recovered since the start of the year which has seen an improvement in household consumption expenditure. Furthermore, household savings have been higher over the past few years and we now expect this to decline given the improvement in consumer sentiment. In addition, equity markets continue to perform well which should see SEK well supported at these levels.”
They note that the decision by the Riksbank at last week´s meeting to revise the rate path downwards took them by surprise given the improvement in economic activity which is domestically driven. The announcement by the Riksbank drove EUR/SEK back up to levels seen in February. Today´s development has seen Deputy Governor Lars E.O. Svensson announce that he will leave the Riksbank on May 20th when his period of office expires. They write, “Lars Svennson has been the most dovish executive board member this year, voting for a 50bp cut at the February and April meetings. While Deputy Governor Karolina Ekholm advocated a 25bp cut at both meetings this year, the remaining four Riksbank Executive board members do not share these dovish views and voted to keep rates unchanged.”
As they have noted previously, the key difference they see in opinion rests on the risk of further inflated house prices and higher household debt, which would likely occur if rates were cut once more. Thus, they feel that the departure of Mr Svennson sees the Riksbank lose its most dovish member and therefore reduces the probability of a cut later this year. They recently updatyed their framework of analysis for SEK, highlighting the importance of Swedish and Eurozone rates with regards to EUR/SEK.
They finish by commenting that the departure of Mr Svennson has weighed on EUR/SEK this morning and provides us with a good entry point to get short. The next two weeks sees the release of important economic data for Sweden, which we expect will reflect continued improvement in the domestic economy. They are selling EUR/SEK at 8.51, with a target of 8.25 and a stop at 8.60.