Below is a quick chart update of the SEK and how it has performed after the uncertain elections that were held in early September. In late August the SEK was the worst performer among G10 currencies. Only worse were currencies such as the South African rand, the Turkish lira and other related emerging market FX pairs.
Sweden has a challenging future to deal with: high private debt, property bubble (still very much present despite the small correction from highs), failed immigration policy to name a few. Longer term these issues pose a realistic threat to the Swedish high flying economy.
Prior to elections we pointed out that the bashed SEK at the time was trading right at levels we had seen in April and we suggested that the short term panic among investors going into the elections had probably got too extreme and that a contrarian trade could be rewarding.
The SEK turned right at those levels and has gained some 3.5% versus the Euro. The FX has now come down (SEK has gained over past weeks) to the trend line that started a year ago. The nervous investors that jumped into FX hedging prior to the elections have by now most probably been flushed out. The trade of playing the elections trade from a contrarian point of view played out well so far.
The trend line from last year should give the Euro some support versus the SEK at these levels. Should the SEK strengthen even more, the big level to watch is at 10,20. This is also the area where we find the 200 day average which is the longer term trend.
Contrarian plays are often painful trades, but at times rewards are substantial going against the crowd, especially as assets get priced in a panic fashion prior to known events with an unknown outcome.
Source: Bloomberg
