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Swedish krona weakness unlikely to last, says SEB

Recent weakness in the Swedish krona provides a buying opportunity, says SEB.

Carl Hammer, the Nordic bank’s chief forex strategist this week, recommended shorting the euro versus the krona.

The EUR/SEK on Tuesday hit a five-month intraday high of 9.7837 as the common currency rose to its strongest level against the US dollar since Donald Trump’s election victory in November.

“The Swedish krona has depreciated rapidly in recent days and, although we recently highlighted that the market was a tad too optimistic on near-term prospects for SEK, it’s hard to explain recent large movements,” said Mr Hammer.

“The FX market seems to be in a carry-seeking mode and negative rates in Sweden make SEK a funding currency of choice.”

In addition, the euro is appreciating against most other G10 currencies, he notes. Normally this would be considered as positive for the krona, too. But that’s “not the case currently”.

Mr Hammer concludes: “Euro/krona levels are longer-term attractive and hence we initiated a short EUR/SEK trading recommendation (entry 9.77) on Tuesday.”

Technical factors are not very supportive of the trade, however. The EUR/SEK’s 14-day relative strength index is 67, so it’s hard to argue yet that the euro is overbought.

Furthermore, the EUR/SEK’s 50-day moving average looks poised to break above the 200-DMA, which is often interpreted as a bullish signal.

jamie.chisholm@ft.com