IRAN: Iranian Foreign Ministry Notes That U.S. Talks To Be Reviewed

Although technical and fundamental conditions in NOKSEK continue to screen bullish, we are conscious that a correction may be required to set the stage for clear push through parity and towards the next key resistance of 1.0139 (May 2024 high). Initial support is the 20-day EMA at 0.9902, which shields key support at the 50-day EMA of 0.9760. Pullbacks short of the 50-day EMA will be considered corrective, and could provide an attractive entry for fresh longs.

• The cross has moved away from session highs this morning alongside front-month Brent crude and natural gas futures, currently +0.25% at 1.0040. 
• NOKSEK has rallied over 10% this year, and our simple short-term fair value model based on rate spreads and an oil/gas proxy currently places fair value around 0.98-0.99.
• The terms of trade and domestic monetary policy backdrop remains favourable, particularly after last week’s Scandi rate decisions. The key short-term risk remains a quick resolution to the Iran war, but this would not necessarily work against NOK on a medium-term basis, particularly if Swedish growth momentum remains soft.
• JP Morgan have recommended buying a 3m 1.01/1.03 NOKSEK call spread, pointing towards monetary policy divergence, the carry-supportive environment and non-prohibitive valuations.
• Goldman Sachs similar note that the current environment “points towards further upside pressure on NOK/SEK”. They write that “while recent NOK outperformance has been striking, we recently noted that the divergence between the Scandi currencies since the start of the year has looked largely justified with the rally in NOK/SEK mostly in line with our GSBEER model“

Figure 1: NOKSEK Since 2024

Equity Desks will be focussing on Option Expiries this Friday (15th May Expiry).

In Notional term these equates to:

• SPX: $1.61T.
• NDX: $81.84bn.
• Amazon: $18.05bn.
• Apple: $19.38bn.
• SX5E: €186.36bn.
• SX7E: €5.39bn.
• DAX: €14.56bn.
• FTSE: £12.32bn.

Oil has pulled back from session highs through early London trade.

• There hasn’t been anything in the way of meaningful recent headline flow, but passage of an Iraqi oil tanker through Hormuz (using Iran’s recommended route) and some Pakistani media reports pointing to “diplomatic and back channel talks” being ongoing between the U.S. & Iran, with diplomacy deemed “not dead”, are potential factors of note over the past couple of hours re: the oil move.
• The broader USD rally has been trimmed, while equities and bonds have based alongside the move in crude.