Strong Swedish production data points to a rebound in Q4 GDP
|The Swedish krona rallied against euro after posting a strong rebound in orders for the month October. Private sector production on an annual basis came in at 4.6%, better than the analysts’ consensus of 2.0%. Total orders in industry rose by 1.0% in October 2018 compared with September, in seasonally adjusted figures. Compared with October 2017, total orders in industry surged by 3.1% in calendar adjusted figures. Among the industrial subsectors, the largest increase was in the other transport equipment industry, up 64.6 percent compared with September.
The PMI data readings for November have also been strong, Monday saw the manufacturing reading beat expectations at 56.7 and earlier this morning the services PMI reading improved from 56.4 to 62.2.
The recent positive prints are pointing to a rebound in GDP for the fourth quarter. On November 30th, third quarter GDP declined 0.2%, posing difficulty for the Riksbank who is considering tightening. Sweden’s central bank has been very clear they are considering a rate rise at either the December or February meeting. If we see slower growth globally, we may start to see all major economies shift to a wait and see mode regarding tightening. Domestically, unemployment is expected to rise, inflation has not been too strong, the krona is expected to rebound, and private debt is at record levels. With growing uncertainties on the domestic economy, the Riksbank may adopt a more wait and see mode on tightening.
Price action on the EUR/SEK daily chart shows that the recent move lower stemmed from the death cross formation at the beginning of the month. If we continue to see weakness, price might not find support until the 10.124. It is around that area that we could see a bullish Butterfly pattern. Point D is targeted with the 200% Fibonacci expansion level of the X to A leg and the 161.8% Fibonacci expansion level of the B to C move. If valid, we could see a rebound towards the 10.2500 region. If the pattern is invalidated, the next key support level would come from the June low of 10.0945.
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