The euro to Swedish (EUR/SEK) exchange rate finally posted a losing day after 5 straight days of sharp gains in the price.
Better risk sentiment was one explanation for the stronger Krona, as news broke of an easing of tensions on the Korean peninsula.
Analysts at SEB believe that the SEK is undervalued and EUR/SEK severely overvalued in both the long and medium term although they do suspect further upside could be possible in March based on historical analysis of movements in the pair.
Key Quotes
“EUR/SEK is overvalued according to both our long-term and medium-term fair values. EUR/SEK is also too high compared to the speculative positioning index.
"However, the deviation from these may last for quite many weeks (6-10 approximately) and should thus not be seen as sharp triggers of an imminent correction.
"One reason a correction seems less probable is that the Swedish equity dividend season will start next week and EUR/SEK tends to rise during this period by an average of +1.8% (2011-2017).
"Two possible correction triggers should be closely followed:
- A turnaround in economic data and surprises including higher inflation and;
- Falling interest rate spread (EUR – SEK) since Feb 26 may slow and eventually turn EUR/SEK spot development if continued.
"And two important resistance zones observed: 10.33/10.41. We expect EUR/SEK to remain at historically elevated levels (new range is 10.10- 10.35).
"Look to sell rallies towards 10.30/35.”