EUR/SEK further upside not ruled out – Danske Bank

Christin Tuxen, Chief Analyst at Danske Bank, assessed the prospects of further upside in the cross.

Key Quotes

“It is worth noting how the Swedish housing market gets headlines almost on a daily basis in the Swedish media. It is definitely to be described as a sudden sentiment shift and in financial markets the currency becomes the natural prey”.

“EUR/SEK has moved from 9.50 to 9.80 in a short period of time and most of the move is in our view explained by house market jitters/concerns. The trend in the cross is up, and we would not be surprised to see the cross moving even higher. If the house market outlook deteriorates further a break above 10.00 is not unlikely, but for the moment, 9.80 makes key technical resistance”.

“Moreover, at 9.80 EUR/SEK is trading at stretched levels (two standard deviations) relative to our short-term interest rate models, which have a fair value around 9.60; thus, we could see a pause in the rally for now”.

“Monetary policy has if anything turned more bearish (less supportive) for the krona recently with inflation surprising on the downside (last) and both the ECB and the Riksbank exits looking more distant, and the SEK swap curve out to 5Y looks too steep, in our view; a repricing could move the fair value for EUR/SEK higher”.