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EURO-SEK: Morgan Stanley went short EUR/SEK at the NY close on Thursday with a
target of SEK10.00 and a stop at SEK10.60.
- MS suggest that "SEK is the cheapest G10 currency when looking at its REER
relative to historical avgs. As we think the USD is likely to appreciate
modestly in coming weeks & EUR may remain offered amid political uncertainty, we
pivot our SEK trade to a EUR/SEK short. SEK should benefit from improving
fundamentals in Europe and more hawkish ECB rhetoric, as it gives the Riksbank
more room to manoeuvre in its policy-tightening plan. Riksbank rhetoric has
turned more hawkish recently, with even the most dovish Board member suggesting
that data trending in the right direction would be sufficient for them to hike
rates & that it is workable to move before the ECB. This should provide support
as markets are pricing a full 25bp rate hike only in Apr '19, later than the
Riksbank's Dec/Feb guidance. Sweden has also built up a record-high net foreign
asset position, suggesting more cushion from repatriation flows in the event of
rising global vol. Risks to the trade include the Riksbank turning more dovish
and a sig sell-off in global risk appetite, weighing on SEK."