trades
MACRO VIEW
O PPO RT U N I T I ES I N G LO BAL M AR K ET DIR ECT IO NAL T R ENDS
Take a look at the Krona By Amelia Bourdeau
he U.S. dollar (USD), the world’s most fallen 5.2% versus the U.S. dollar and 2.9% tor risk-seeking appetite, therefore negatively traded currency, is followed in trading versus the euro. The krona has fallen nearly impacting the high beta Scandi currencies. In volume respectively by the euro 7% versus the U.S. dollar and 4.7% versus addition, the Swedish economy has been slow(EUR) and the Japanese yen (JPY), according the euro. As stated above, when the Scandies ing, negatively affecting the krona. to the The Bank of International Settlements move, they tend to move a lot. But why are the (BIS) Triennial Central Bank Survey on Scandi currencies the worst performers versus TRADE IDEA The Scandi currencies are very Foreign Exchange Turnover (April 2019). The the U.S. dollar and euro when the S&P 500 thinly traded, but they can present select profit world recognizes those three currencies as the Index (SPX) is up 20.4% year-to-date? opportunities. Ahead, the krona should remain powerhouses of developed market, or G10, According to that one metric, risk-seeking weak as the Swedish economy plods through currency trading. But what about the other appetite among investors seems to be posi- a slowdown and inflation remains subdued. G10 currencies? tive or “risk-on,” meaning Scandi currencies Riksbank, the central bank of Sweden, has Consider two of the lower-profile G10 should also be strong. However, looking at just forecasted a policy rate hike will occur within currencies—the Norwegian krone (NOK) and the overall rise in the S&P 500 Index this year a month, but analysts disagree. In addition, Swedish krona (SEK). Those currencies are hides the fact that notable risk-off periods have some analysts think Riksbank could cut its policy rate early next year. That Riksbank cheekily known on trading floors by their nick- occurred throughout the year. names “Nokkie” and “Stokkie.” They’re also Last month’s Macro column, 5 Tips for monetary policy uncertainty should weigh on referred to collectively as the “Scandi” curren- Choppy Markets, was devoted to that flip-flop the krona versus the euro. Buy six-month 11.10 cies. The krona ranks as the 11th most-traded or risk-on/risk-off phenomenon. Continued EURSEK call. currency in the world, and the krone is 14th, market uncertainty about the big, unresolved Amelia Bourdeau is CEO of marketcompassllc.com, according to the BIS. macro themes—the U.S.-China trade war, an advisory firm that provides global macro Traders keep the Scandi currencies on their Brexit and the slowing U.S. and European education and trading strategy to investors of all radar screens because when krone and krona economies—have weighed on overall inves- levels. @ameliabourdeau move, they tend to move quickly and by sizeable amounts, sometimes even intra-day. While not the top three powerhouse currencies traders trade day-in and day-out, the Scandi EURSEK versus VIX Index currencies are the side hustlers. A rising VIX—a measure of volatility/risk-off sentiment—tends to weaken the krona versus the euro. Traders can capture solid, short-term gains on occasion with them if they monitor them and pay attention to upcoming relevant event risk. Why? Traders consider the Scandi currencies “high beta,” meaning they can be sensitive to the overall risk-seeking sentiment in markets. For instance, risk-on days in equity markets can see the Scandi currencies strengthen and risk-off days can mean they weaken. In addition, Norway exports oil, making the krone an “oil” currency that’s sensitive to price changes in petroleum. So far this year, Scandi currencies have been the worst performing G10 currencies against both the U.S. Source: Bloomberg LLP dollar and the euro. The krone has
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luckbox | december 2019
1912-trades-macro.indd 54
11/14/19 3:41 PM
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