SEK gains post-CPI, EUR/CHF at danger zone

Forex News and Events

Quiet European trading session has been squeezed by SEK rally amid the Swedish inflation surprised on the upside. The Riksbank released October 28th meeting minutes and hinted at more monetary stimulus given the macro environment. The slow Euro-zone growth and low abroad inflation were on the menu.

In Switzerland, the downside pressures on EUR/CHF raise speculations on SNB intervention. EUR/CHF trades in tight range of 1.20230/1.20312 so far. We stand ready for SNB intervention if tensions on 1.20 floor do not ease. Some bet for EUR purchases, while interest rate futures price in negative rates.

SEK takes a breather on October inflation pick-up

The Swedish October inflation surprised on the upside in October. The CPI unexpectedly improved to 0.1% on month to October (vs. -0.1% exp. & 0.2% last), the yearly CPI contraction slowed to -0.1% (vs. -0.2% y/y exp. & -0.4% y/y prev).

In a surprise action, the Riksbank has cut its repo rate by an aggressive 25 basis points to 0% in October 28th meeting. The minutes of the meeting showed Swedish officials discussed on “possibilities as other central banks to take further measures to increase the monetary policy stimulus”. The minutes confirmed a “highly expansionary” monetary policy, as Swedish policy makers agreed on the importance of bringing inflation back toward 2% or more. Skingsley said the need for expansive policy requires a delay in repo rate normalization. Concerns on slow Euro-zone recovery and low abroad inflation were emphasized. In the current macro environment, “further cuts in inflation forecasts can’t be ruled out” stated the minutes. There is “small likelihood” of another rate cut according to Riksbank’s Floden.

USD/SEK legged down to 7.4030 post-CPI, dovish Riksbank stance limited the sell-off. Bullish trend lost pace in the morning session, yet the bias is seen positive for a daily close above a distant 7.3360 (MACD pivot).

EUR/SEK remained bid above 2.18/23 supply zone (including 21/50 and 100-dma & July-Oct downtrend top). The 3-month cross currency basis shows better preference for EUR verse SEK. The negative MACD tells EUR/SEK is currently at bearish consolidation zone. There is possibility for deeper downside correction to be considered as good entry opportunity into long EUR/SEK positions as long as the critical 200-dma holds. The pair did not trade below its rolling 200-dma in more than a year.

SNB intervention on the wire?

Downside pressures in EUR/CHF intensify as uncertainties on the outcome of November 30th “gold referendum” increase. Formerly, the “no” outcome was mostly priced in as traders didn’t give much chance for a ”yes victory”. However Swiss voters do not seem heavily against the idea of keeping 20% of SNB’s 522 billion franc assets in physical gold and in Switzerland. The leveraged markets is a sizeable threat for the EUR/CHF floor. In the option markets, the “yes” pricing pulled the 1-month (25-delta) EUR/CHF risk reversals to lowest levels in more than a year, the pair is stuck between 1.2000/50. We see large put expiries at 1.20 walking into November 30th. At this stage, we stand ready for SNB intervention should the tensions on 1.20 floor do not ease. In case of SNB intervention, the most likely action would be EUR purchases. While the interest rate futures trade above the par, highlighting that traders also price in the possibility of negative rates to stabilize EUR/CHF market above 1.20.

Swissquote SQORE Trade Idea:

Commodity + Index Model: Sell OILUSD at 77.22

Today's Key Issues (time in GMT)

2014-11-11T12:30:00 USD Oct NFIB Small Business Optimism, exp 95.8, last 95.3

The Risk Today

EUR/USD remains within its short-term declining channel, indicating persistent selling pressures. Hourly resistances can now be found by 1.2509 (10/11/2014 high) and 1.2577 (04/11/2014 high). An hourly support can be found at 1.2358 (07/11/2014 low). Another support lies at 1.2242 (10/08/2012 low). In the longer term, EUR/USD is in a downtrend since May 2014. The break of the strong support area between 1.2755 (09/07/2013 low) and 1.2662 (13/11/2012 low) has opened the way for a decline towards the strong support at 1.2043 (24/07/2012 low). A key resistance stands at 1.2886 (15/10/2014 high).

GBP/USD remains in a succession of lower highs and lower lows. Hourly resistances can be found at 1.5918 (10/11/2014 high) and 1.6002 (06/11/2014 high). An hourly support lies at 1.5791 (07/11/2014 low). Another support stands at 1.5718 (21/08/2013 high). In the longer term, the break of the support at 1.5855 (12/11/2013 low) confirms an underlying bearish trend. Next supports can be found at 1.5718 (21/08/2013 high) and 1.5423 (14/08/2013 low). The long-term technical structure remains negative as long as prices remain below the resistance at 1.6227 (09/10/2014 high).

USD/JPY has bounced near the hourly support at 114.06. A break of the hourly resistance at 115.52 (06/11/2014 high) would confirm a persistently strong short-term buying interest. An initial support now lies at 114.64 (intraday low). Another resistance can be found at 117.95 (15/10/2014 high). A long-term bullish bias is favoured as long as the key support 105.23 (15/10/2014 high) holds. The break of the major resistance at 110.66 (15/08/2008 high) opens the way for a further rise towards 120.00 (psychological threshold, see also 61.8% retracement of the 1998-2011 decline).

USD/CHF displayed a large daily lower shadow yesterday, indicating persistent buying interest. Hourly resistances can be found at 0.9699 (intraday high) and 0.9742. Hourly supports stand at 0.9617 (10/11/2014 low) and 0.9580 (04/11/2014 low). From a longer term perspective, the technical structure favours a full retracement of the large corrective phase that started in July 2012. The recent new highs above the key resistance at 0.9691 confirm this outlook. A strong support stands at 0.9368 (15/10/2014 low). A key resistance can be found at 0.9839 (22/05/2013 high).

Resistance and Support: