Euro bullish moment, buy EUR/SEK

Investing.com – The euro is currently enjoying bullish momentum, according to Bank of America Securities, and that looks set to continue.

In August, the selling of the US dollar was arguably the focal point for the foreign exchange market, BoA analysts said in a note on August 26, while the euro’s broad rally may have been underappreciated by investors.

However, year-to-date the euro’s nominal effective exchange rate (NEER) has appreciated by 1.1% on a trade-weighted basis, in the 80th percentile over the past 20 years, the bank added.

The euro’s strength is not just about the bilateral spot breakout, the bank said, as among the non-USD G10 currencies, the euro could have the most bullish momentum in the near term.

“Over the past month, the 1M skew (risk reversal on atm volume) has increased by 12% for EUR/USD calls, by far the largest of all USD/G10 pairs,” BoA said.

With that in mind, and given the momentum for the euro, the bank is recommending a bullish view on the cross this week.

“EUR/SEK stands out as an attractive candidate for us as the pair has returned -3% over the past month, ranking in the third percentile over the past decade,” the bank said. “The EUR/SEK spot move was against bullish EUR options flow and is dislocated from the 2-year EU-SK spread.”

The SEK rally is stretched, BoA added, and in our view was largely driven by the relaunch of SEK short positioning and speculators treating the SEK as a “high-beta” proxy for the euro amid this month’s risk recovery.

“As spot EUR/SEK has now broken down to trend support and the 200-day SMA, the level has become attractive enough to tactically short EUR/SEK’s move from the beginning of the month.”

At 06:15 ET (10:15 GMT), EUR/SEK traded 0.1% lower at 11.3905.