EUR/SEK Volatility Higher Amid Swedish CPI And Election Risk

Published 01/08/2019, 01:24 AM
EUR/SEK
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Danske Bank FX Volatility Valuation Monitor

The front-end of the EUR/SEK volatility curve has increased as the risk of a snap election is rising.

Event risk priced on the Swedish October CPI print (on Wednesday) has increased and looks relatively expensive. We forecast CPIF at 2.6% y/y, which should not alter the Riksbank's hike plans.

If we are right on the CPI print, implied volatility could temporarily see a squeeze lower, opening up for a buying opportunity. Note that the Parliament is scheduled to vote on a Moderates + Christian Democrats government on Wednesday. Proposal not likely to pass.

We still see value in buying EUR/SEK call spreads with maturity in 6W to two months' time as a means to position for/hedge against a spike higher in EUR/SEK. See Reading the Markets Sweden: 9 November 2018

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