Analysts at MUFG Bank, present a trade idea to short USD/SEK around 9.200, with a target at 8.900 and a stop loss at 9.3500. The idea reflects a bearish outlook for the US dollar.
“We still see scope for the USD to weaken further as the COVID crisis continues to ease. The value of the USD is not yet fully reflecting the sharp decline in US real yields. In contrast, real yields in Sweden have increased modestly since the COVID crisis began.”
“USD/SEK is still trading much higher than expected based on the adjustment that has taken place in real yield differentials between the US and Sweden. At the same time, we have recently seen some divergence in the new COVID case growth between Sweden and the US. While the pick-up in US cases remains a concern and is putting a dampener on the recovery, new case growth in Sweden has fallen back sharply. It could encourage positive SEK sentiment in the near-term. A favourable outcome from the upcoming EU Leaders summit would also work in favour of a lower USD/SEK.”
“USD/SEK is close to key technical support provided by the early June lows at 9.1292 which if broken would open the door to further downside. The main risks to the trade idea are that risk assets correct meaningfully lower thereby temporarily boosting USD demand.”
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