SEK rallies against EUR post-Riksbank rate decision and QE extension, attacking key support at 9.6755.
It’s not really supposed to play out this way. The Swedish Central Bank has just announced it is holding rates at -0.5% and is continuing QE yet the SEK rallies strongly against the EUR? The headlines make for pretty dovish reading.
*(SE) SWEDEN CENTRAL BANK (RIKSBANK) LEAVES REPO RATE UNCHANGED AT -0.50%; AS EXPECTED
– Extends QE bond buying by 6 months (into H1 2017) in amount of SEK30B
– Reiterates view that still high level of preparedness to make monetary policy more expansionary
– Reiterates view that rate cut more likely than a hike in
– Reiterates view that rate cut more likely than a hike in short-term- Sees 1st rate hike in early 2018 – Source TradeTheNews.com
That looks pretty dovish to me. EUR/SEK though has immediately fallen from 9.7200 to 9.6690 before a small bounce to 9.6750.
So what has happened? I think the key here is that the decision was not unanimous with three board members dissenting. There is some slight change in the language of the statement from “has increased” to “still greater probability” the next move in interest rates will be a cut. One could construe that the above is slightly less dovish. I also think that the street had expected the Riksbank to slavishly follow the ECB vis a vis rates and QE and had thus gone into the decision very long.
The price action itself could turn out to be significant though as the chart below shows, we have major support at 9.6755 and the 100-day moving average at 9.6722. EUR/SEK is trading at 9.6720 as I write and a daily close below this level could open up more downside on a technical basis.
The next major support is a long way away at 9.4990 (9.5000 between friends) the 200-day moving average. The MACD has crossed lower on decent volume and the RSI is still not oversold, so no help there for EUR/SEK technically.
Resistance is at 9.7290, the day’s high and then a double top at the 9.8450 region.
Whichever way you look at it this was a “dovish hold” by the Riksbank and thus the price action following (ie SEK strength) is worthy of close monitoring for the remainder of the session.
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With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley is OANDA’s senior market analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes.
He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays.
A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV, Channel News Asia as well as in leading print publications including the New York Times and The Wall Street Journal, among others.
He was born in New Zealand and holds an MBA from the Cass Business School.