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Treasury

Market Updates

25 Feb. 2019

Sweden: Sugar High to Sugar Crash!

 

FUNDAMENTAL ECONOMIC OUTLOOK

 

 

The beleaguered Swedish Krona may not find some oxygen soon despite the Riksbank’s rate hike on 19th December 2018, the first time in 7 years from -0.5% to -0.25%, as a slew of negative news have negated the recent attempt higher on the Krona.

 

The latest rate hike in Sweden is looking out-of-synch, following the recent data print. The Swedish krona has been the worst performer over the last few months on the FX market. January CPI numbers significantly missed consensus, while GDP forecasts were also revised lower by the Swedish Debt Office, sending the USD/SEK from sugar high to sugar crash.

 

However, the Riksbank has had several opportunities to row back hawkishness based on recent poor economic data. Instead, on 13th February, Riksbank Governor Ingves maintained an upbeat tone on the rate hikes, leading to a possible policy misstep.

 

Nonetheless, what Central Bank members have in common was their increasing concern on international risks like Brexit, US-China trade relations and European growth; slowdown in the largest Eurozone economies of Germany, France and Italy, and increasing domestic risks like abolishing rent controls on newly built apartments, and possibly loosening labour laws, which may ponder on the export-driven Krona.

 

The recent soft domestic data and the likelihood of a mildly dovish Riksbank next rate decision on April 25th might retain the krona under pressure, amid market is keeping a close eye on Sweden’s GDP, PPI, retail sales and manufacturing PMI data this week. Yet, the fundamental outlook for the global and weak Swedish economy suggests the USD/SEK pair might continue to climb higher.

 

 

USD/SEK: TECHNICAL OUTLOOK

 

In an Elliott wave perspective, the impulsive rally from September 2018 low of 8.7517 on the USD/SEK is still in progress. Furthermore, the pair got an extra boost recently, rocketing to as high as 9.41 in a knee-jerk reaction to the recent bearish fundamentals. However, the Bulls might find it hard to crack the 9.4626 resistance level, the highest point since 2016, in the medium term.

 

On the hourly chart, the current structure suggests a Wave ((4)) pullback in coming weeks as the pair may scope for a bearish reverse with a minimum retracement of Fibonacci level 38.2% to 9.2361 level. Besides, the negative RSI divergence on the hourly chart revealed that the upside momentum may lose some steam, favouring the bears.

 

The long-term pattern indicates a resumption of the rally ahead, post possible pull-back to a target level of 9.6825, a projection of Wave ((5)) based on minimum Fibonacci level 61.8%.

 

 

 

 

Disclaimer: This communication is provided for information and discussion purposes only. Unless otherwise indicated, it does not constitute an offer or recommendation to purchase or sell any financial instruments or other products. AfrAsia Bank does not guarantee or warrant the accuracy, reliability, completeness of the information in this publication.