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Old 05-22-2018, 03:01 AM
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Join Date: Feb 2018
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Default SEK Revival Set To Be Temporary

EUR/SEK. Our bearish SEK view has two pillars: first, the inflation outlook makes it hard for the Riksbank to raise rates this year; second, a sharp slowdown in growth due to the housing market. That said, we argued in FX Strategy: EUR/SEK 6 pause in ascending trend channel , 4 May, that EUR/SEK looked overbought and was prone for a correction. Since then, we have seen the sharpest krona recovery since 2015. There is a silly circular reference from a weak SEK to higher inflation to higher rates and then back to a stronger SEK that sort of caps the upside in EUR/SEK. On the other hand, this circular reference is symmetric, where too much SEK appreciation will not be welcomed by the Riksbank given subdued underlying inflation while a slowdown in growth remains a headwind for the SEK. We set our1M forecast to 10.20 (10.40), 3M to 10.30 (10.50), 6M to 10.50 (unchanged) and 12M to 10.20 (unchanged).

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