The Big Picture

Sweden’s Riksbank steps up its fight against deflation The spotlight of the day will be on the Riksbank policy meeting where the consensus is for a rate cut. Sweden’s economy hasn’t improved since their last rate cut in early July. Inflation rate has been falling for months and recently it surprised the markets falling deeper into deflation at -0.4% yoy. Moreover, the country’s unemployment rate remains at high levels. Despite the unexpected 50bps rate cut at their July meeting, inflation did not pick up, which makes us believe that market consensus of a 15bps may not be enough for the inflation to revive. Yet, with interest rates getting closer to the zero bound, Sweden’s central bank is running out of conventional options. Our view is that the Riksbank could cut interest rates down to zero and revise down the repo rate path, pushing expectations of a rate hike back even further. On top of the rate cut, a dovish statement by Governor Stefan Ingves would likely keep the SEK under selling pressure.

With no major economic releases or central bank comments overnight, things have been fairly calm for the major currencies during the Asian session. The dollar remained within ±0.20% range against its G10 peers. The only indicator released overnight was the Japan retail sales for September. The monthly figure accelerated however, leaving JPY intact.

Today’s indicators: Besides the Riksbank meeting, Sweden’s retail sales for September are forecast to drop in pace, a turnaround from the previous month, while the small trade deficit in September is anticipated to rebound and turn into a surplus again. The mixed data are most likely to be ignored since they are released at the same time as the main policy rate. Riksbank’s Governor Stefan Ingves will hold a press conference following the rate decision.

We have no major data to be released from Eurozone or the UK.

Later from the US, the durable goods orders for September will take center stage. The headline figure is forecast to show a 0.5% mom rise, a rebound from -18.4% mom in the previous month. On the other hand, durable goods excluding transportation equipment are estimated to rise at a slower pace. Conference Board consumer confidence for October is forecast to remain near its seven-year high, adding to signs of an improved US economic outlook. The Richmond Fed manufacturing index for October and S & P/Case-Shiller house price index for August are also coming out.

As for the speakers, in addition to Riksbank Governor Stefan Ingves, Norges Bank Deputy Governor Jon Nicolaisen speaks.

The Market

EUR/USD stays virtually unchanged

EUR/USD moved in a consolidative mode on Monday, remaining near the 50-period moving average and the 1.2710 (R1) resistance hurdle. Looking at our momentum studies, I see that the RSI remains above its 50 line, while the MACD, already above its trigger, appears willing to emerge above its zero line. Taking these signs into account, I would stay watchful of further upside, perhaps for a test near the lower line of the black channel, or near the 1.2840 (R2) barrier, which happens to lie marginally below the 23.6% retracement level of the 8th of May - 3rd of October downtrend. However, since the possibility for a lower high still exist, I will retain the view that EUR/USD is likely to be resuming the prior downtrend and that the recovery from 1.2500 (S2) probably ended near the 200-period moving average. As a result, I would prefer to stay to the sidelines for now. I would wait for a dip below the 1.2600 (S1) hurdle to reaffirm the case. Such a break could open the way for another test of the psychological barrier of 1.2500 (S2), which happens to be the 76.4% retracement level of the July 2012- May 2014 major advance.

• Support: 1.2600 (S1), 1.2500 (S2), 1.2465 (S3)

• Resistance: 1.2710 (R1), 1.2840 (R2), 1.2900 (R3)

GBP/JPY remains elevated

GBP/JPY moved in a quiet mode yesterday, staying above the 173.00 (S1) support line and above the 200-period moving average. As long as the price structure is higher highs and higher lows, I would consider the near-term bias to be to the upside and I would expect extensions towards the key resistance line of 175.00 (R1). Both our momentum studies lie within their bullish territories, but the MACD just crossed below its trigger line. Thus, I cannot rule out a pullback before the bulls pull the trigger again, perhaps for a test near the support line of 173.00 (S1). On the daily chart, the 14-day RSI moved above its 50 line, while the daily MACD has bottomed and crossed above its trigger. These momentum signs support the near-term positive tone, and increase the likelihood for further up legs in the close future.

• Support: 173.00 (S1), 171.00 (S2), 170.15 (S3)

• Resistance: 175.00 (R1), 176.60 (R2), 178.00 (R3)

AUD/USD still ranging

AUD/USD moved higher yesterday to challenge again the resistance of 0.8830 (R1). Nevertheless, the pair kept its trendless mode. The rate remains within a sideways path between the 0.8640 (S2) support obstacle and the resistance of 0.8900 (R2). As a result, I would hold my “wait and see” approach and wait for the pair to exit the aforementioned range. On the daily chart, the 14-day RSI moved higher and seems ready to challenge its 50 line any time soon, while the MACD remains above its trigger line pointing up. However, the absence of any bullish trend reversal signals from the price action give me additional reasons to stay flat.

• Support: 0.8700 (S1), 0.8640 (S2), 0.8565 (S3)

• Resistance: 0.8830 (R1), 0.8900 (R2), 0.9000 (R3)

Gold finds support at 1222

Gold moved slightly lower yesterday to touch our support barrier of 1222 (S1). As long as the price remains below the 1235 (R1) obstacle, I would hold the view that the short-term bias remains to the downside. A clear fall below the 1222 (S1) support is likely to trigger extensions towards the next hurdle, at 1205 (S2), defined by the low of the 8th of October. On the daily chart, the 14-day RSI moved below its 50 line, while the daily MACD has topped marginally above its zero line, turned negative and appears willing to move below its trigger line in the close future. These momentum studies designate bearish momentum and amplify the case for further declines.

• Support: 1222 (S1), 1205 (S2), 1183 (S3)

• Resistance: 1235 (R1), 1255 (R2), 1260 (R3)

WTI rebounds from near the 79.40 line.

WTI tumbled on Monday falling below the psychological line of 80.00 (S1). However, the price touched our next support at 79.40 (S2) and rebounded strongly to trade back above 80.00 (S1). As a result I would maintain my neutral approach and I will repeat that I would prefer to see a dip below 79.40 (S2), before getting more confident on the downside. Such a break would confirm a forthcoming lower low on the daily chart and could flip the bias back to the downside in my view. Moreover, the 14-day RSI moved higher after exiting its oversold territory, while the daily MACD has bottomed and appears willing to cross above its trigger any time soon. These momentum signs give me extra reasons to remain on the sidelines, at least for now.

• Support: 80.00 (S1), 79.40 (S2), 79.00 (S3)

• Resistance: 82.40 (R1), 83.50 (R2), 85.00 (R3)

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