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SEK: Not all hope is lost for 2019

According to analysts at Nordea Markets, there are some potential game-changers for the SEK in 2019 with the Riksbank’s QE program being the chief driver of the SEK weakness in 2018 and if domestic accounts are no longer as ready to sell SGBs, that leaves foreign accounts – and such flows are more likely to be SEK-negative.

Key Quotes

“If Swedish investors reduce their selling of USDSEK forwards, it won’t affect EURUSD much because of the pairs liquidity but it may affect EURSEK positively (a purchase of USDSEK equals one purchase of EURSEK and sales of EURUSD). We have also seen in recent years that changes in USD positioning on IMM data often roughly coincides with movements in EUR/SEK. As the global market collective turned more positive on the USD, it has coincided with a weaker SEK even vs the EUR.”

“If the dollar is ripe for a large weakening move, so as to compensate for the 3%+ hedging cost, the market could find itself massively underhedged. A wave of USD selling might result, which would spill over to a positive flow environment for the SEK (a sale of USDSEK equals one purchase of EURUSD and one sale of EURSEK). In our view, this is the game-changer to look for if one wants to be a big SEK bull (and to a certain extent NOK bull as well).”

We though find it harder (compared to 3-4 months ago) to see the end of the USD cycle around the corner.”

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