We consider it unlikely the Riksbank will introduce a floor under EUR/SEK. A prolonged period of low inflation is, in our view, a necessary but not sufficient condition for FX intervention.
Before the Swiss National Bank (SNB) introduced its floor back in 2012, the central bank had repeatedly complained about an overvalued CHF causing low inflation. The Riksbank has not. The SNB's EUR/CHF floor is set 25% below the 1995-2012 average. EUR/SEK is currently 1% above the 1995-2014 average.
We expect the Riksbank to cut the repo rate on Tuesday to 0.10% and delay the first hike well into 2016. As a short-term trade, we recommend buying one unit EUR/SEK 1-week 9.20 call and selling two units EUR/SEK 1-week 9.1275 put, zero cost, spot.ref. 9.1850. We recommend longer term players take advantage of such a rally to enter a short position. We keep our 1M target at 9.20 and 3-6M target at 9.10.
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