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Macro Commentary

EURSEK has given back some of the gains it made in early 2020, but can the euro catch a bid?


  • Unemployment has started to rise, reaching 4.8% in April, up from 4.2% in March
    • We expect this to increase further in the coming months to 9%
  • Manufacturing PMI declined in April to 36.7, down from 43.2 the month prior
  • Private sector manufacturing and industrial production and orders were negative in March at -2.2% y/y, -0.1% y/y, and -2% y/y respectively
  • We expect this weakness to remain the case in April and May
  • Inflation is expected to fall towards 0% on a y/y basis due to weak energy prices, excluding energy prices the Riksbank see CPIF at 1.74% for April
  • We do not envisage a prolonged period of weak inflation
  • Household consumption was understandably significantly weaker on a y/y basis, contracting 3.1% in
  • March, again, we expect this weakness to remain the case in April
  • GDP is expected to decline -6-8% for 2020
  • The welfare state and their sick pay policy will help contain the spread of the virus as workers will not feel obliged to go to work if they have symptoms

Gov’t & Central Bank

  • Spending SK2.2bn on employment in elderly care in 2020/21
  • Riksbank purchases government and mortgage bonds for SK18bn and SK85bn respectively
  • Interest rates were kept at 0%
  • Riksbank is looking to scale up its response to COVID by using bond purchases and bank loans
  • Less appetite to cut rates after ending 5yrs of negative rates in 2019
  • Their debt to GDP ratio is low, and this gives them room to increase their balance sheet
  • Corporate bond-buying has not been ruled out
  • USD loans have been provided to credit institutions so they can cover their own and customers USD needs
  • Purchasing securities issued by non-financial corporations, to reduce the need for these companies to apply for loans via banks
  • Swedish gov’t will cover a clear majority of costs for the employers who reduce their employee’s working hours by up to 80%
  • Employers unburdened up to 86% of total wage costs in May & June

The measures taken by the Swedish government and Riksbank suggest that there are further tools available to continue supporting the economy. It isn’t clear that herd immunity is working in Sweden yet, but as shops, bars and restaurants stay open, this should help support the economy over others. Their relationship with China will also benefit the economy as China was one of the first to emerge from the crisis. We, therefore, prefer holding a long SEK position at this time over the euro.

Volatility Commentary

As with most Macro FX Vols, since March we’ve seen implied vols come off as lockdown becomes the new normal, with EURSEK being no exception. Looking at one-month expiry vols below, we can see that realised vols have not come off as much as market-implied since mid-March, and in some instances, has realised higher than recent implied vols (something not seen in other EUR pairs such as 1-month EURUSD or EURGBP). With the certain areas of Europe beginning to unlock slowly could potentially face a second spike (e.g. Germany), and with the coronavirus strategy in Sweden being so unconventional, we favour being slightly long vol/gamma on this pair and as mentioned above favour SEK over EUR.

EURSEK Trade Idea

  • Long Vol, short EURSEK – 1-month expiry
  • Buy Put spread in 10m EUR notional with strikes 10.6000 and 10.4500 for circa 47k EUR
  • Sell Call spread in 7.5m EUR notional with strikes 10.7000 and 10.9000 to receive circa 26k EUR
  • The total upfront premium cost 21k EUR

Charts and Tables

Technical Charts 

JPM Volatility Index

The index has consolidated in recent weeks. The MACD diff is negative but lacks any real conviction as the stochastics have consolidated in oversold territory. We continue to see the index compressed by the moving averages and support at 8.70. The index has oscillated between 8.70 and failed at 9.50, we need to see a breakout above this level in order to confirm the outlook of higher prices in the near term. Conversely, after support at the 8.70, we have secondary support at 7.20. The candles lack conviction in either direction but the stochastics are oversold and this could trigger a move through 9.79.


DXY Index 

The index created a double top this week at 100.440 but remains range-bound in the longer term. The stochastics are falling and are about to break into the oversold territory but the MACD diff lacks conviction. The stochastics failed to make a new high on the second rally to form the double top, suggesting a waning appetite for higher prices. To confirm the double top and the stochastics, we need to see a break below the lower trend channel and then a test of the 50% fib level. This level has held firm but a breach here would regain downside momentum and pave the way for lower prices to 97.812. Conversely, if the index is well bid below the lower trend channel and forms a hammer, we could see prices take out the double top at 100.440. To confirm the upside impetus, the index needs to break above 101.



The pair have remained on-trend in recent weeks as challenges of the 100 DMA have been rejected prompting a correction to the downside. The indicators favour the downside as the stochastics are oversold and the MACD diff is negative but does lack conviction. To confirm the bearish engulfing candle and double top at 10.7087, prices need to take out support at 10.56 and then target 10.43. A break of support at 10.56 would confirm the descending triangle and rejection of the 50 DMA, and the death cross in April. If support at 10.56 holds firm this could set the scene for a test of the 100 DMA at 10.73 before 10.83 in the more medium term.



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