The krona took an undeserved hit following yesterday's GDP numbers - undeserved because in our view it will not alter the Riksbank policy stance. The second quarter was weak but not weak enough to trigger another rate cut given what is going on elsewhere in the economy and not least taking into account the Board's concern with household debt (just read the minutes from the latest policy meeting and you will see). Meanwhile, the ECB is likely to signal that rates will stay low for an extended period: a dovish message from Mario Draghi tomorrow should weigh on the EUR.
The money market seems to agree with this view, as the reaction in short rates was muted and did not warrant more than 3-4 figures in EUR/SEK. We got 12 figures. As a result, the pair is significantly overbought relative to our short-term interest rate spread model, which has a fair value at around 8.56.
We recommend entering a one-month EUR/SEK seagull for the downside: Buy an 8.65 put, sell an 8.51 put and sell an 8.85 call with spot ref 8.72. The strategy is zero cost. It maximises your profit to 14 figures and in the worst case you will be short from 8.85.
To Read the Entire Report Please Click on the pdf File Below.
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SEK Weakness Overdone, Enter A EUR/SEK Seagull For The Downside
Published 07/31/2013, 06:52 AM
Updated 05/14/2017, 06:45 AM
SEK Weakness Overdone, Enter A EUR/SEK Seagull For The Downside
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