Setefan Mellin, Senior Analyst at Danske Bank, noted the cross is seen around 10.20 in a month’s view.
“Our bearish SEK view has two pillars: first, the inflation outlook makes it hard for the Riksbank to raise rates this year; second, a sharp slowdown in growth due to the housing market”.
“That said, we argued that EUR/SEK looked overbought and was prone for a correction. Since then, we have seen the sharpest krona recovery since 2015”.
“There is a silly circular reference from a weak SEK to higher inflation to higher rates and then back to a stronger SEK that sort of caps the upside in EUR/SEK. On the other hand, this circular reference is symmetric, where too much SEK appreciation will not be welcomed by the Riksbank given subdued underlying inflation while a slowdown in growth remains a headwind for the SEK”.
“We set 1M to 10.20 (10.40), 3M to 10.30 (10.50), 6M to 10.50 (unchanged) and 12M to 10.20 (unchanged)”.
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