EUR/SEK: 10.40 level to offer firm support – Rabobank

This week, EUR/SEK has hit the lowest level since April 2019, currently at 10.41, and is expected to find support at the 10.40 as the Swedish economy faces a lot of bleak economic news, per Rabobank.

Key quotes

“While borders have been reopening in the region, Sweden’s neighbours are maintaining checks on Swedes. This could hinder the ability of the small, open economy to bounce back. Additionally, Sweden’s high mortality rate suggests that footfall could remain low with consumers potentially remaining cautious for longer.”

“Q2 is widely expected to show that the economy has not avoided a huge hit from the pandemic.  In the year as a whole, the Swedish government has estimated that the economy could shrink by around 7% while the Riksbank has pointed to a 7% to 10% contraction.”

“In terms of monetary policy, the Riksbank sees its balance sheet as a key tool. All members supported the decision to leave rates at zero in April, though the door for a potential return to a negative rate was left open. The next policy announcement is scheduled for July 1 and a similar approach to policy is likely with the balance sheet set to remain favoured over another rate cut.”

“In view of the negative projections for the Swedish economy and the likelihood that the Riksbank will underscore a dovish policy stance next month, we expect the EUR/SEK 10.40 area to provide support.”