Morgan Stanley went short CHF/SEK at..........>

FOREX: Morgan Stanley went short CHF/SEK at yesterday's NY close with a target

of SEK9.0000 and a stop at SEK9.6200.

- MS added "this trade to balance our risk-bearish portfolio. The SEK 3-month

Libor rate has risen from -49bp in Oct to 0bp as banks are holding more cash in

preparation for tighter capital requirements. As a result, SEK hedging costs

have risen for foreign investors. Only recently, foreign investors in

SEK-denominated assets were paid to hedge the FX risk of their SEK assets. This

incentive is no longer in place, suggesting less SEK selling. Swedish economic

data has also held up relatively well. The Riksbank is also one of the few

central banks globally still looking to hike rates. Meanwhile, the CHF upside is

likely limited as we expect the SNB to become less tolerant of CHF strength

should EUR/CHF fall towards CHF1.10. Prospects of Weidmann succeeding Draghi as

ECB president, turning the ECB less dovish, have also risen. A less dovish ECB

would make it easier for the SNB to weaken the CHF while giving the Riksbank

more room to tighten policy without the fear of unwanted SEK strength. The risk

to this trade is a sharp and significant sell-off in risk assets."