With the euro area now in deflation and the growth outlook in the region appearing limited at the moment, there are large negative spillover risks into Sweden. For this reason and the potential for resulting accommodation from the Riksbank, we go short SEK this week. We prefer the risk/reward of being short against USD since there are risks of seeing further weakness in EUR, should the ECB announce a QE programme. Our economists expect Sweden to have dipped into further deflation to -0.5%Y and the recent commentary from the central bank suggests that the bank is ready to act if necessary, keeping a dovish tone. We look to buy at 8.01 with a target of 8.50 and stop at 7.90.
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