EUR/SEK: Consensus reflation narrative set to be tested, upside to 10.40 - Danske Bank

FXStreet reports that economists at Danske Bank see near-term risks in EUR/SEK skewed on the upside and forecast the cross at 10.40 in one-to-three months.

“We see a high likelihood that the reflation story will backfire as data may no longer meet expectations at a point where global surprise indices are clearly in stretched territory. Political risks are piling up and the epidemiological risks seem to be mounting as well, and that is unlikely to pass unnoticed by either the real economy or financial markets. Against this less optimistic backdrop we see near-term risks in EUR/SEK being skewed to the upside.” 

“We are lifting the one-to-three months forecast from 10.20 to 10.40. In 2021, the world should be closer to a vaccine/sustained recovery, which should support the krona. The Swedish inflation outlook remains a headwind for the SEK long-term. We lower the EUR/SEK six-to-twelve month forecast from 10.40 to 10.20.” 

“Continued risk-on reflation and USD bashing would probably feed through into an even stronger SEK where USD/SEK may drop towards/below 8.00 and EUR/SEK towards/below 10.00. If risk sentiment turns nasty enough, EUR/SEK could go well beyond 10.40. We would probably need to see the SEK appreciation escalate further before the Riksbank steps in.”