Consider Long Canadian Dollar, Short Swedish Krona

As we noted in the North American daily comment, we suspect the market has exaggerated the likelihood of Bank of Canada intervention and this is presenting a lower risk opportunity to buy the Canadian dollar. Meanwhile, a lot of good news has been priced into the Swedish krona, which has appreciated nearly 13% against the US dollar since early July. Today's news of a smaller than expected trade surplus warns that the market may have gotten ahead of itself and that like elsewhere, the Swedish recovery will be slow. The US dollar has found support over the past few days near SEK7.0.

Technical factors are also supportive of a long CAD short SEK position. The Canadian dollar has fallen 8.6% against the krona since mid-July and approached the lows for the year near SEK6.4. Momentum has eased and the market is poised for a near-term reversal. For a short-term trade, consider buying Canadian dollars and selling Swedish krona near SEK6.51. A stop just below today's low of about SEK6.4550 is prudent and on the upside, the initial conservative target is SEK6.68 but there is potential back toward SEK6.75-SEK6.80.