In the case of SEK, long positions in USD vols can be advantageously coupled with short vols in the EUR cross.

Long gone are the days when the market was testing the Riksbank’s nerves in the low 9.0s in EURSEK. The latest Swedish data do point to a rebound from slowing economic momentum.

We reckon that USDSEK better over EURSEK owing to premiums of US elections.

The catalyst for a major break higher in SEK is lacking – a definitive end to the Riksbank easing cycle and a tangible prospect of rate hikes within a 6-9 month time-frame.

As a conventional risk-off currency SEK is benefitting from the positive sentiment on the financial markets since the US election. The October inflation data is also suggesting that the trend is stabilizing and the likelihood of further expansionary measures on the part of Riksbank has eased somewhat.

Today’s data on the economic trend will underline once again that the economy is not a problem for Riksbank.

Its focus still rests on inflation (that remains far too low). That means that positive economic data (e.g. retail sales and Q3 GDP data next week) justify a moderately stronger krona.

At the same time, we should keep an eye on price data, in particular, the November results: if it disappoints Riksbank will extend its asset purchasing program that expires at year-end and will announce possible further expansionary measures.

Option trades:

Sell 2M EUR/SEK 9.40 call RKI 9.60

Buy ATM 2M EUR/USD vs. sell 1M EUR/SEK, in 80:120 vega ratio

Long 1-mo USD/SEK put fly, 8.10/8.00/7.90

Buy 2M USD/SEK 25D put, sell 6M 25D call, eql notionals.