NOK/SEK expected to grind lower – Danske Bank

Jens Sorensen, Chief Analyst at Danske Bank, sees the Nordic cross losing momentum.

Key Quotes

“Currently, we observe some very stretched signals in the Scandi crosses after the recent strengthening of NOK and weakening of the SEK, which has sent EUR/NOK into oversold territory and EUR/SEK into overbought territory”.

“The divergent directions for NOK and SEK have pushed NOK/SEK significantly higher and the cross is currently ‘very overbought’, trading 2.4 standard deviations above the model’s fair value estimate of 1.0421”.

“We are fundamentally bullish on both NOK and SEK on a medium-term horizon, and in this respect, not least the move higher in EUR/SEK looks like a selling opportunity. However, it is also our view that EUR/NOK has probably come down too much too fast and we thus recommend positioning for a correction lower in NOK/SEK via option markets”.