Marshall Gittler
Trading Analysis
USD/SEK
The dollar traded higher against almost all of its G10 peers during the European morning Thursday, ahead of the US employment report to be released later in the day. It was higher against AUD, SEK, NZD, CAD and JPY, in that order, while it was lower only against NOK. The greenback was stable vs GBP, CHF and EUR.
The Swedish krona plunged after the country's central bank surprised the markets and cut its key rate further into negative territory and expanded its bond purchases program. The key rate was cut to -0.35% from -0.25% and the QE program was expanded by SEK 45bln. Even though the country escaped from deflation recently, the krona has become stronger than the Bank had forecast, which remains a risk to the upturn in inflation. Given that the Bank maintained the option to cut rates further, I would expect SEK to remain under selling pressure in the short-term. On the medium-term however, I would expect the relatively high Swedish bond yields to keep the currency supported.
The pound strengthened after Britain's construction PMI rose to 58.1 in June from 55.9 previously, beating expectations of 56.2. Following the soft manufacturing PMI on Wednesday, the positive surprise eased concerns over growth in Q2 and strengthened GBP somewhat. The service-sector PMI, to be released on Friday, will shed further light on the likelihood of a rebound in Q2.
USD/SEK surged during the European morning Thursday after the Riksbank's unexpected interest rate decision. The pair emerged above the resistance (now turned into support) territory of 8.3900 (S1) and above the medium-term downtrend line taken from the peak of the 13th of April. Subsequently, USD/SEK hit the resistance barrier of 8.4750 (R1) and then retreated somewhat. Bearing in mind that the pair is now trading above the aforementioned downtrend line and above the short-term uptrend line drawn from the low of the 18th of June, I would see a positive near-term outlook. A clear move above the 8.4750 (R1) hurdle could prompt extensions towards the next one at 8.5370 (R2). The trigger for such a rally could be a strong US employment report later in the day. Our short-term oscillators support the notion as well. The RSI raced higher and now looks ready to challenge its 70 line, while the MACD, already positive stands well above its trigger line and points north.
Support: 8.3900 (S1), 8.3400 (S2), 8.2700 (S3)
Resistance: 8.4750 (R1), 8.5370 (R2), 8.5900 (R3)
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