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SEK: TEMPORARY REBOUND IN THE MAKING? – DANSKE BANK

Senior Analyst, Kristoffer Kjær Lomholt at Danske Bank, explains that when closing the 2017 books for EUR/SEK, they note that (1) the cross moved sideways to slightly higher before the PPM and then dropping, which makes a normal year and (2) the cross had a good but not fantastic year.

 

Key Quotes

 

“Actually, the 2.7% annual rise is the smallest rise among all 10 positive years since the EUR was launched in 1999. Still, a weaker SEK should help the RB, right? Well, maybe not, because USD/SEK had the fourth worst year since 1999, after a 10% annual drop. As a result, KIX was basically flat.”

 

"The fact that USD/SEK is down and KIX is flat suggests that the currency may actually become a headwind for the RB eventually. That said, the seasonal pattern shows that January is a good month for the SEK – our impression is that investors typically enter a new year with a bullish take on the SEK – with EUR/SEK dropping 0.7% on average since 2010. If that is repeated, the cross would take out the 9.80 support in the coming weeks. We think the rebound in the SEK will be temporary though. The key arguments are (a) the RB being priced too aggressively in rates markets given our inflation outlook, (b) a fragile housing market and (c) slowdown in growth."

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