EUR/SEK remains volatile, room for further upside – Danske Bank

Chief Analyst at Danske Bank Allan von Mehren assessed the recent price action in the cross following the steady stance from the Riksbank at yesterday’s meeting.

Key Quotes

“EUR/SEK rose about 15 figures on the back of the Riksbank decision and naturally so. The Riksbank now expects the repo rate to be -0.56 by Q4 17 from -0.32 previously. This is important as it is unlikely that the ECB will cut rates deeper into negative territory. Clearly, Scandinavian banks are dealing better with negative rates than several euro area ones and there are a host of reasons for that, including a much larger fixed deposit base in the euro area countries. How banking systems are dealing with negative rates may affect relative monetary policy”.

“EUR/SEK is trading in uncharted territory and it is difficult to call the peak just yet. Shortterm, expect EUR/SEK to trade in a volatile and choppy fashion. Over the medium-term, the upside in EUR/SEK should be limited given that the pair is already trading at overvalued levels in our view and also given that the ECB is expected to extend QE in December when we expect a Riksbank taper relative to the ECB. Note that the Riksbank still expects more than 5% SEK appreciation over the forecast horizon, albeit from a higher KIX level”.