Stay long SEK vs EUR (cash) and NZD (options) EURSEK continued its steady but nevertheless persistent decline this week as an extremely strong PPI print supported the sense that the inflation cycle in Sweden is gaining momentum. The relationship between PPI and CPI is rather loose but at 6.5% PPI is at its highest level in a decade and consistent with CPIF moving above 2%.

As we wrote last-week, the Riksbank forecast a slight decline in CPIF this year, so may soon be in the unusual position of having to respond to upside inflation surprise (a high-class problem, admittedly).

We remain long SEK, although with EURSEK having already retraced 60% of the Riksbank-inspired rally from 9.12 last April to 10.00 in December, the pace of gains are likely to slow, at least ahead of the next CPI print on February 17.

Stay short in EURSEK spot FX at reference 9.4237 with stop at 9.6637.

Add longs in 6m NZD put/SEK call, strike 6.3322 for 1.47%. Spot reference 6.3585.