Fundamental Analysis: Big Gains for the Krona after Better Data

Fundamental Analysis: Big Gains for the Krona after Better Data

The Swedish krona made a strong upward movement against most major currencies today. This development came in the context of solid data from the eurozone and much better sentiment on cycle-sensitive currencies.

USDSEK fell to three-week lows around 9.22 kr, with similar losses for the pound to 12.01 kr and the euro to about 10.434 kr. Meanwhile the krona reached a month high of ¥12.12 against the yen.

Support from Eurozone inflation

Sweden’s economic calendar has been empty of significant events so far this week. Attention has been focused instead on releases from elsewhere in Europe and the world’s major economies. This morning’s inflation data from the eurozone gave significant support to the krona, coming in at expectations in each case except for core CPI.

Scandinavian exports to the major economies of the EU are very important for currencies like SEK, NOK, and DKK, so today’s news gave impetus to gains for the krona. Monthly CPI in the eurozone is stable at 1%, and the annual figure of 1.4% is also unchanged from last month’s release.

Shares and Chinese data help sentiment

More support came from Chinese data this morning, with Chinese GDP up slightly to 6.4%, and annual industrial production showing a big gain to 8.5% against the previous 5.3%. These releases are important for the krona mainly because of their effect on sentiment. Better growth in China typically gives a boost to currencies like SEK which tend to trade cyclically.

Turning to events in stock markets, the OMX Stockholm 30 posted a gain of around 0.33% in today’s session. This sees the Swedish benchmark for shares reach fresh 2019 highs, with the latest figure above 1,653. Gains by the OMX typically spur higher demand for the krona and provide fundamental support to the currency.

Headwinds from Swedish inflation and rate differentials

So much for the positives that have driven SEK so far this week, but inflation in Sweden remains an issue. The annual consumer price index (fixed interest) declined slightly to 1.8% last week as compared with the Sveriges Riksbank’s target of 2%. This makes hints of a rate hike in 2019 less likely at the Riksbank’s next meeting.

Rate differentials in the meantime continue to limit gains for the krona. The repo rate at negative 0.25% is the lowest of any country in the G20, and the differential with the dollar remains 2.5-2.75% in the dollar’s favor. Carry selling of the krona is one of the most important factors leading to its losses against USD this year. SEK’s year-to-date loss of nearly 3% against the dollar is the biggest of any G10 currency.

Traders eye Swedish unemployment tomorrow

The approach of Easter means that trading is likely to be thin into next week. However, the release of Sweden’s unemployment rate tomorrow morning at 08.30 GMT remains important for SEK’s direction. The consensus of 6.6% is the same as the previous figure.

Tomorrow also features manufacturing PMI from Germany, with a slightly less negative figure of 45 expected. Apart from these releases, traders are also likely to monitor the various figures from the USA due out this week. These are likely to have some effect on USDSEK.

Possible gains for SEK, but low liquidity

Based on fundamentals, the krona seems to be set for more gains into next week. However, the technical picture with stochastics indicating overbought means that these are unlikely to be as significant as today’s. Traders should also remember that liquidity will be lower and volatility higher over the Easter holiday.

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