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- New York 10:33
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FX Commentary
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EUR/SEK update
Thu, Nov 13 2008, 17:32 GMT
by Stefan Mellin
EUR/SEK still risk on the upside
- Fear, solid risk aversion and continued deleveraging keep weighing on the SEK while EUR/SEK remains extremely volatile with 1M implied above 16% and intraday highs/lows over the last month often exceeding 20 figs.
- Reflecting the uncertainty it's also notable that normal SEK drivers currently exhibit extreme correlations; 3M rolling correlations with equities, risk sentiment proxies, Baltic freight, yield spread, USD are all close to 0.9 where direction-wise all of them back the recent increase in EUR/SEK. Relative equities however has supported the downside but correlation here has not been as strong lately.
- Overall, a lot of bad news is already priced in current EUR/SEK levels as our short-term financial model (STFM), while higher in the last few days, indicates fair value at around 9.85.
- From a long-term perspective EURSEK is now one of the most overvalued currency pairs in the G10 universe, but the near-term outlook suggests that substantial misaligment will not be adjusted any time soon.
- Our 1M target (forecast) at 10.10 has been met and while we forecast a SEK rebound in 2009 (6M forecast at 9.60) a turn around is not likely before risk sentiment improves markedly, stock markets find some ground (still very challenging times) and not least volatility comes down. The short-term risk in EUR/SEK therefore appears biased to the upside. The potential shock from a meltdown (devaluation?) in the Baltic region is another burden for the SEK. EUR/SEK might be seen as a proxy trade for the Baltic currencies as these markets do not function properly.
- Domestically, macro data will continue to deteriorate over the coming months; risk for a negative third quarter GDP, further weakness in the labour market but also expect frontloaded rate cuts by the Riksbank; 50bp in December while market is pricing in almost 100bp.
- Last week's week close at 10.06 was the first ever above 10.00. A week close above 10.06 would confirm the uptrend and a test of 10.17 (21 Oct high, "neckline") would be underway. A close below 10.00 would be SEK supportive.
Published on Thu, Nov 13 2008, 17:37 GMT
Archive
- USD: February TIC data
Published On Fri, Apr 17 2009, 07:44 GMT - Stock markets and the SEK - some details
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Published On Thu, Feb 5 2009, 11:35 GMT
Danske Bank
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This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector. This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange. Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.Related reports
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