US Dollar, Swedish Krona, Norwegian Krone, Coronavirus – TALKING POINTS
- US Dollar may rise with havens vs. NOK and SEK on coronavirus concerns
- FOMC outlook may push USD higher if officials re-iterate neutral position
- BoE rate decision, forecasts could catalyze selloff in GBP/SEK, GBP/NOK
The US Dollar may continue to rise against the cycle-sensitive Swedish Krona and Norwegian Krone if the fear about the coronavirus endures and pushes haven-linked assets higher. The Greenback may also be given a boost by the FOMC if their outlook reinforces the Fed’s neutrality. British Pound-Nordic crosses may fall if the Bank of England Governor Mark Carney strikes unexpectedly dovish overtones at his last meeting.
FOMC Rate Decision, Powell Commentary
Market participants are largely expecting for the Fed to hold interest rates at their current range of 1.50 – 1.75 percent. Investors will therefore turn their focus to Chairman Jerome Powell who will likely reinforce the central bank’s neutral position by citing solid jobs growth and a strong consumer. This may push the timeline for easing back and give a boost to the US Dollar and further propel USD/SEK and USD/NOK higher.
Bank of England Rate Decision: GBP Selloff Ahead?
Over the past few weeks, BoE officials have debated the “merits of near-term stimulus” as Brexit uncertainty continues to pressure inflation and economic activity. While consumer confidence has ticked slightly higher following the market-friendly election of Boris Johnson, it continues to hover in negative territory. Manufacturing also continues to suffer from both international trade uncertainty and domestic political peril.
Having said that, last week’s PMI data for services, manufacturing and composite all beat expectorations and cooled BoE easing bets. But that does not necessarily stave off the prospect of a rate cut. This upcoming meeting marks Mr. Carney’s final press conference as BoE Governor, and he may favor delivering “near-term” stimulus on a “risk management” basis as a cushion in case of a future economic downturn.
European GDP Data May Spook NOK, SEK Traders
A cascade of GDP data from key Eurozone economies including France, Italy, Spain and the aggregate Eurozone may elicit volatility in Nordic currencies. At last week’s ECB meeting, President Christine Lagarde pointed to signs of a moderate rise in underlying inflation as economic growth across the region shows signs of stabilization as outlined by the IMF.
Weaker-than-expected data could hurt NOK and SEK since Norway’s and Sweden’s export-oriented economies strongly rely on robust demand out of Europe. Riksbank policymakers have repeatedly warned that slower growth in Europe could send a chilling effect across Sweden. This may in turn engulf the country in financial turmoil if it leads to a downturn and exposes what were dormant vulnerabilities.
Q4 Earnings May Cushion Blow From Weaker Sentiment
A cascade of earnings data throughout the week may nurse some of the losses in NOK and SEK if the reports show strong numbers for the fourth quarter of 2019. Earlier this month, Amazon announced that its sales this year are likely to print another record-breaking statistic. However, market mood may be dampened on earnings data from Caterpillar, a manufacturing giant that continues to be bruised by shaky global trade uncertainties.
USD/NOK Technical Analysis
USD/NOK has risen over four percent since bottoming out at the end of 2019, owing its recent rise to the spike in risk aversion from the coronavirus. The pair is now encountering friction as it tests resistance at 9.1407. Capitulation could open the door to re-testing support between 9.0526 and 9.0713. Conversely, a break higher with follow-through opens the door for further gains until it hits a ceiling at 9.2155.
USD/NOK – Daily Chart
USD/NOK chart created using TradingView
USD/SEK Technical Analysis
USD/SEK has broken above the 9.4996-9.5323 range (white-dotted lines) and may attempt to re-test a familiar but formidable resistance zone between 9.6878 and 9.7722 (gold-dotted lines). However, failure to clear resistance may be met with a selloff and a possible resumption of directionless trading at former support.
USD/SEK – Daily Chart
USD/SEK chart created using TradingView
GBP/SEK Outlook Bearish
GBP/SEK is approaching critical resistance at 12.6131, a level not reached since October 2019, and before that in May of the same year. However, the upcoming BoE rate decision and subsequent commentary may pour cold water over hopes of surmounting this ceiling, opening the door to a selloff until it hits support at 12.4172.
GBP/SEK – Daily Chart
GBP/SEK chart created using TradingView
US DOLLAR TRADING RESOURCES
— Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitri on Twitter