-Focus this week will be on (i) implementation risks following the EU summit, and (ii) central bank meetings (Riksbank, BoE and ECB). We know from previous policy announcements that implementation risks are high and that stories related to this tend to surface and holds the potential to derail sentiment. In a week that also holds an ECB meeting this should help put a cap on EUR/USD upside. A 25bp refi rate cut is largely priced and focus will be on whether the ECB also delivers a deposit rate cut and whether new long LTROs have become more likely. We prefer to stay neutral in EUR/USD for now.
-Scandi PMIs below 50: Norwegian PMI fell to 46.3 in June from 54,5 in May, mainly due to a sharp drop in export orders. This corresponds well to the fall in global industrial activity and suggest a sharp slowdown in activity towards the end of Q2. However, the response rate was unusually low in June, which makes the figures more uncertain than usual. EUR/NOK spiked above 7.56.
Swedish PMI fell to 48.4 from 49.0 in June, which was roughly in line with expectations. This should not change the outlook for the Riksbank on Wednesday, which remains a close call. Markets price less than a 30 percent probability of a 25bp cut and our main expectation also remains for the Riksbank to stay on hold. Risks are hence likely skewed to the upside in EUR/SEK. EUR/SEK downside is beginning to look somewhat stretched with the RSI(14) trading around 28. Note that the G10 FX financial scorecard is short SEK (see link below).
-IMM positioning: AUD and NZD positioning remains broadly neutral, which for these high-yielding currencies is light positioning, as carry trading tends to leave investors long (see page 2). Light positioning also means that there is potential for the positive momentum to be sustained if no new negative surprises hit the market.