Implied FX volatility continues to decline and both EUR/NOK and NOK/SEK impl. vol. now trade at the lowest levels since 2014.
Strategically, we remain bullish NOK and recommend to add long NOK/SEK exposure (see Reading the Markets Norway: Norwegian outperformance vs European peers, 4 February). We recommend adding long NOK/SEK by buying the 3M (NYSE:MMM) 1.0725-1.0950 NOK/SEK call spread (costs SEK75 pips (indicatively), spot @ 1.0725), which covers the Norges Bank meeting on 21 March, where we expect the bank to hike the interest rate.
Short-term realised volatility (High-Low gamma value) has stabilised in EUR/SEK and USD/SEK which should ease downward pressure on implied vol. We still see value in adding long 3M EUR/SEK straddle positions as we recommended last week.
