Why Forex Traders Should Buy the Krona, Sell the Franc - enCore Energy (NASDAQ:EU), iShares Inc iShares MSCI Sweden ETF (ARCA:EWD)

If you are trader looking to play the German economic growth story but do not want to carry the baggage of Greece, you might consider buying the Swedish krona. Sweden's economy is booming. After growing 5.7% last year, the Swedish economy grew at annualized rate of 6.4% in the first quarter, according to

Bloomberg

. Bloomberg also found that economists are anticipating a 3.6% appreciation of the krona against the U.S. dollar and a 4.4% appreciation against the euro this year. Thus far, Sweden's appreciating currency has not hurt its exports, as both Volvo AB and Ericsson AB are doing fairly well. The Swiss franc has traditionally been seen as the

proper play

in the present situation, but that trade may be becoming overcrowded. If one uses the purchasing power parity metric, the franc appears to be relatively overvalued. Purchasing power parity equates the cost of a basket of goods in different currencies. In theory, if the price of a good is adjusted for transaction costs, the same good ought to cost the same price in two different markets. Thus, traders should be cautious before moving additional funds into the franc.

Action Items

Bullish:

Traders who believe that Sweden presents a great investment opportunity might want to consider the following trades:

Buy Currency Shares Swedish Krona Trust FXS in a long play on the Swedish currency. If Sweden continues to strengthen, its currency might strengthen as well. Alternatively, investors might move into the krona if they fear the franc is becoming overvalued.
Buy iShares MSCI Sweden Index EWD in a long play on the broader economy of Sweden. If Sweden continues on its path of aggressive economic growth, EWD may do well.

Bearish:

Traders who believe that Sweden is due for a correction may consider taking positions in the following:

Currency Shares Swiss Franc Trust FXF is a long play on the franc. PPP may predict an overvalued franc, but if Sweden slows and the euro faces continued pressure from the Greeks, European traders might effectively be forced to buy the franc.
WisdomTree Dreyfus Euro EU is a long play on the euro. The euro faces headwinds, but may rally if investors shift funds out of the krona.

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