J.P.Morgan Like Long NOK/SEK

Late Friday saw J.P.Morgan recommend re-buying NOK/SEK at SEK0.9966 with a stop-loss at SEK0.9725. They noted that "NOK is undershooting oil on a broad index basis by 2%, even adjusted for its asymmetric beta to oil (NOK tends to appreciate in smaller magnitudes when oil is rising, but weakens by more when oil prices are falling). This mispricing is particularly acute for NOK/SEK. Based on recent relationship relative to Brent and rate differentials, NOK/SEK should be closer to SEK1.0150. Increases in oil prices in line with our outlook should further raise the fair value of NOK (the usual pass through from Brent to NOK/SEK is around 10%). NOK's undershoot, in conjunction with a possible hawkish message from the Norges Bank and an even more bullish view on oil prompts us to increase delta on NOK/SEK longs even at these levels. NOK longs are admittedly not without risks which largely stem from global factors - a further disorderly rise in U.S. yields and a related deterioration in risk sentiment are the primary causes for concern - and indeed why we optionalized NOK exposure two weeks ago. Moreover, rates markets are already fully priced to Norges Bank hikes (30bp by 2021-end). However, NOK/SEK longs in particular continue to look attractive. Valuations and an even more bullish view Brent aside, pairing two high beta currencies with different central bank orientations in a relative value trade has yielded higher risk-adjusted returns since the U.S. Treasury sell-off started earlier this year (compared to NOK longs expressed vs. EUR and USD which are more vulnerable to changes in risk sentiment). Moreover, poor SEK seasonality in late March given dividend payments by Swedish companies should also provide some cushion in the coming weeks. Trading strategy remains tactical."