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Macro and Vol Commentary

EURSEK has weakened in recent weeks as the Swedish economy continues to recover.

Swedish Economic Data

  • The economic recovery in Sweden is underway; the inflation rate reached 1.9% in March, almost quadrupling since December as prices rise due to higher energy and raw material prices. Inflation ex-energy prices was 1.4%, but both data points are advancing towards the 2% target.
    • Inflation expectations suggest that long term inflation could converge around the 2% inflation target, with none of the scenarios conducted by the Riksbank over this level.
    • The 10yr nominal and real government bonds spread outlines inflation expectations, and Sweden and Europe have seen an uptick in this data.
  • Retail sales are improving at 2.6% m/m in March, an improvement on the previous month of 1.7% m/m.
    • Strong retail sales growth is set to continue initially; however, the unemployment rate is clouding the picture slightly.
  • Consumer confidence is improving in line with the reopening of the economy and other headline economic data. April’s reaching was 103, compared to the 97.4 the month prior.
  • The unemployment rate has increased from 9.7% in February to 10% in March. We expect unemployment to remain high throughout 2021; the disconnect is between industries is particularly prevalent, with hospitality unsurprisingly high.
    • The average number of the register-based labour force was 8.4% in March, up 0.8%m/m.
    • This will have a moderately negative impact on inflation.
    • Wages for non-manual workers was 2.1% y/y
  • The PMIs outline the recovering economy, with the April reading for manufacturing and services PMI at 69.1, and 65.6, respecively.
    • Manufacturing PMI expanded for the 10th straight month and reached the second-highest level in 26 years.
    • New orders increased to a record high; output expectations also increased to 75.3
    • Services PMI was strong as business volume improved significantly.
  • GDP Q/Q was 1.1% in Q1 but was flat at 0.0% y/y.
    • M/M indicators suggest that growth is improving, with GDP at 5.7% m/m, and 3.5% y/y in March.
  • Industrial orders are rising m/m gained 0.3% m/m with industrial orders gained 5.3% y/y

Monetary Policy

  • Riksbank held the repo rate at 0% in April, and this is expected for a while
  • Riksbank will continue to purchase assets within SEK700bn
  • The current plan will mean around SEK140bn asset purchases in H2 2021, which given maturities that occur, H2 2021 increase will be SEK100bn
  • The purchase amount of asset allocations during Q2 was SEK100bn, but the purchase amount for Q3 was proposed at SEK 75bn

Both the European and Swedish economy shows signs of recovery, European vaccinations have recovered well, and we have seen this reflected in risk appetite in European assets and positive economic data. The bloc is on track to reach 70% of adults vaccinated by the summer; this improves the possibility of increased travel between European countries, which would enhance the fundamentals of the economy in the long run. ECB have suggested they will not reduce bond-buying in the near term and have kept rates constant. We do not expect the ECB to change policy; the June meeting will be integral to understanding the bank's future course. Both central banks will continue with their current policy in the near term, but the language is essential. We expect Riksbank to move first but not for some time; in our opinion, SEK will remain on-trend, and we favour selling rallies of EURSEK, but they prefer options strategy below.

EURSEK 1-month Implied and Realised Volatility

Volatility Commentary

With the pandemic and economic situation in both the Eurozone bloc and Sweden improving we’ve seen EURSEK vols broadly come off since the start of the year with volatility realising lower than implied. With vaccine roll outs continuing and central banks on both sides not expected to change policy in the short term we’d expect to see this trend continue. Below we have two suggestions.

EURSEK Trade Idea 

Non-directional volatility trade

  • Sell 1-month expiry ATM Straddle for circa 5.25 vols
  • Delta hedge short gamma/vega position
  • Doing so in 10m EUR a leg (20m EUR total) gives circa 25k EUR Vega
  • Trade only suitable for investors with the capability to manage and delta hedge short gamma positions

Directional trade benefits from EURSEK spot down

  • Buy 1 month put spread with strikes 10.10 and 10.00
  • Sell 1-month call spread with strike 10.20 and 10.30
  • Cost for structure circa receive 6k EUR to be priced in 10m EUR notional per leg

Positioning Charts

USDBRL NDO Positioning Data 27/04/2021 - 04/05/2021

Options executed for USDBRL favour the downside, there remains little appetite for upside options suggesting the market is betting on BRL rallying. This has been the case for some months now but upside volumes are becoming less and less. There are some put options with high nominal values but these tend to expire between now and mid-June. There is limited cover below 5.10 which is in line with our expectations, however, we expect EM inflation to be increasing at a faster rate and therefore the chances of Brazil hiking rates increases. The market is expected to be rangebound in the near term. 

USDBRL NDO Positioning Data 04/05/2021 - 11/05/2021

USDCNY Vanilla Positioning Data 27/04/2021 - 04/05/2021

There were more options executed this week, shown by chart 2. There is little upside cover above 6.70, however, there are more calls with larger nationals executed towards this level. The range has been between 6.30-6.70 for some time now, but we continue to see traders favour the downside. The dollar has strengthened today due to a strong overshoot from inflation, but we do not expect the market to break the range. 

USDCNY Vanilla Positioning Data 04/05/2021 - 11/05/2021

EURSEK Vanilla Positioning Data 11/03/2021 - 11/04/2021

There are very few options traded in EURSEK in the last month as traders favour assets with a clearer outlook. However, options executed moderately favour the downside, there is more cover below 10 in the month to June 11th. There is little exposure from either side after June 8th, and this suggests the market favours the downside up to this point.  On the upside, there is a cluster of options executed towards 10.3 but little cover following that level. This is a narrower range from the previous month when the range was 9.8-10.5. 

EURSEK Vanilla Positioning Data  11/04/2021 - 11/05/2021

Charts and Tables

FX Expiries

Volatility Grid

Historical Spot FX Volatility (30D Rolling)

FX Matrix (today)

Weekly Change

Key Events & Releases

Technical Charts

JP Morgan Global FX Volatility Index

The index has improved so far in May and has breached resistance at 50 and 100 DMAs, and now stands at 7.36. The stochastics are rising but are highly overbought, but the MACD diff is positive and converging, suggesting we could see the index push lower in the near term. The index needs to hold above 7.40 before targeting 200 DMA at 7.412. The reaffirmation of near term support at the moving averages suggests we could see the market push higher. On the downside, rejection above7.40 could trigger a break of support at 7.20 and the moving averages. The 50 DMA just crossed above the 100 DMA, a strong buy signal, but prices need to find support above 200 DMA to confirm the outlook. 

Dollar Index


The index has strengthened in the last couple of sessions and broke above key resistance at 90.70 but have struggled to break above the 100 DMA level. The stochastics are seen converging on the downside in the overbought, and the MACD diff is positive and converging. In order to confirm the outlook of lower prices, the index needs to reaffirm resistance at 90.70 and then take out the key support at 90.50. On the upside, a break back above 90.70 and a test of 91 would indicate further upside potential. Two opposite candles with long lower wicks point to an appetite for higher prices, but until we see a break above the current resistance, the index is capped on the upside.


The pair gained ground in recent sessions but has failed to break above resistance at 10.20, and this could trigger losses back to the 50DMA at 10.15. The stochastics are rising yet converging in the overbought, and the MACD diff is positive and converging on the downside, and this could set the scene for lower prices. The bearish engulfing today confirms a sharp change in the sentiment, but the pair needs to take out 50 and 100 DMA at 10.15 and 10.14 to confirm the outlook. On the upside, rejection of prices below 200 DMA at 10.16 could trigger gains back towards 10.20. To confirm the outlook of the weaker prices in the long term, the pair needs to break the support at 10.10. A breach of this would confirm the break out of the double bottom. 



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