FX markets are likely expecting too much of a hawkish shift from the Riksbank while analysts at BNP Paribas are targeting 9.40 in EURSEK by year-end, but the risk near-term is for a squeeze back to 9.70 on any disappointment from Riksbank today.
“BNP Paribas Positioning Analysis indicates that the market has rapidly built up a large long SEK position ahead of Tuesday’s Riksbank meeting. The score has risen to +27 (on our -/+ 50 scale), the largest SEK long in over a year. This may have been motivated by the hawkish stance taken by speakers from several G10 central banks over the past fortnight. Given that the Riksbank has been careful to maintain dovish policy and not tighten ahead of the ECB, market participants appear to have viewed more hawkish commentary from the ECB as opening the gate for the Riksbank to move away from its extremely easy policy stance.”
“However, the Riksbank remains extremely FX sensitive and they seem unlikely to discount the fact that EURSEK has already declined 1.4% since Draghi’s speech last Tuesday. Furthermore, the Riksbank’s KIX index of the effective SEK exchange rate is now back to February’s highs. With the ECB’s QE programme set until end 2017 (as is the Riksbank’s), the Riksbank may want to wait until there is a tangible announcement of changes in ECB policy before making signficant policy steps. In light of this, in our view the market’s hawkish expectations for the Riksbank meeting are likely to be disappointed. We could see EURSEK rally back toward 9.70.”