24 Mar 2015
Further gains expected in EUR/SEK – JP Morgan
FXStreet (Edinburgh) - According to analysts at JP Morgan, the depreciation expected in the Swedish krona could send the cross higher.
Key Quotes
“In the tit-for-tat round of monetary easing no central bank has been as explicit as the Riksbank in acknowledging that rate cuts and QE are motivated solely by and directed at the exchange rate”.
“What makes the Riksbank’s course of action this week (rates cut by 15bp to -25bp and QE quadrupled to 1% of GDP) difficult to interpret however is that the currency was no stronger in trade-weighted terms than the Riksbank had expected in its February forecasts”.
“There’s no doubt that the Riksbank wants a weaker currency but plenty of doubt whether the market will indulge its wishes, not least as both the Swedish growth and inflation cycles are now swinging higher and the Riksbank cannot be expected to get anywhere near the volume of ECB QE (10-11% of GDP vs 1%) in a way that would be necessary to durably lift EUR/SEK”.
“The scene is thus set for the market to test the Riksbank’s new-found currency resolve. We position for this through a 9.20 EUR/SEK put, RKO 9.05, as we expect any renewed downturn in EUR/SEK to hesitate around the 9.15 level that seemed to trigger this week’s policy response”.
Key Quotes
“In the tit-for-tat round of monetary easing no central bank has been as explicit as the Riksbank in acknowledging that rate cuts and QE are motivated solely by and directed at the exchange rate”.
“What makes the Riksbank’s course of action this week (rates cut by 15bp to -25bp and QE quadrupled to 1% of GDP) difficult to interpret however is that the currency was no stronger in trade-weighted terms than the Riksbank had expected in its February forecasts”.
“There’s no doubt that the Riksbank wants a weaker currency but plenty of doubt whether the market will indulge its wishes, not least as both the Swedish growth and inflation cycles are now swinging higher and the Riksbank cannot be expected to get anywhere near the volume of ECB QE (10-11% of GDP vs 1%) in a way that would be necessary to durably lift EUR/SEK”.
“The scene is thus set for the market to test the Riksbank’s new-found currency resolve. We position for this through a 9.20 EUR/SEK put, RKO 9.05, as we expect any renewed downturn in EUR/SEK to hesitate around the 9.15 level that seemed to trigger this week’s policy response”.