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US Dollar May Fall vs NOK, SEK on Davos Forum, Growth Outlook

US Dollar May Fall vs NOK, SEK on Davos Forum, Growth Outlook

2020-01-21 05:00:00
Dimitri Zabelin, Junior Currency Analyst
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Norwegian Krone, Swedish Krona, US Dollar, Davos Forum – TALKING POINTS

  • Norwegian Krone, Swedish Krona may rise at expense of US Dollar
  • IMF outlook, Davos forum could pressure havens, lift market mood
  • NOK, SEK may rise on the ECB, Norges Bank rate announcements

The Norwegian Krone and Swedish Krona may rise against the US Dollar if commentary from officials at the forum in Davos, Switzerland uplifts market mood and pressures haven-linked currencies. However, the Greenback’s recent activity shows it has been oscillating between acting as an anti-risk asset and a security trade due to the premium it carries relative to its G10 counterparts.

Davos Forum, IMF World Outlook Unpacked

The biggest known event risk ahead will be the forum in Davos, Switzerland where business executives and world leaders will convene to discuss the world’s most pressing issues. Last year the event generated notable cross-asset volatility, and in 2020 it may be higher due to the current economic conditions. The global economy is now more vulnerable to geopolitical shocks than it was in 2019 and 2018.

The week started off with the International Monetary Fund’s (IMF) forecasting a 3.3 percent growth rate in 2020, a 0.2 percentage point downgrade. Analysts attributes softer growth to geopolitical tensions, “idiosyncratic stress in key emerging market economies” and no-deal Brexit fears. However, the IMF reported that the decline in manufacturing appears to have bottomed out as market mood continues to improve.

While the baseline growth projection is weaker, developments since the fall of 2019 point to a set of risks to global activity that is less tilted to the downside compared to the October 2019 WEO. [Having said that,] the balance of risks to the global outlook remains on the downside” – IMF.

If markets continue to see these kinds of messages where the urgency for volatility-inducing risks are on the horizon but growth in the near-term remains stable, it may fuel risk appetite and push NOK and SEK higher. In essence, what the report concluded are that geopolitical risks remain the biggest threat to global growth, and assuming escalation does not continue, growth should continue to stabilize. Is this a realistic expectation?

ECB Rate Decision May Boost NOK, SEK

The European Central Bank (ECB) rate decision may boost the sentiment-linked Norwegian Krone and Swedish Krona if commentary from officials strike an optimistic tone and fuel risk appetite. Since October 2019, economic data out of the Eurozone has been steadily improving and started to outperform economists’ expectations towards the end of the year.

The Euro 5Y5Y inflation swap forward is at its highest point since May 2019, though the dominant downtrend remains intact. This reflects market expectations that Eurozone inflationary prospects remain somewhat subdued. Having said that, improved economic conditions and better trade relations between the US, EU and China may alleviate the pressure for the ECB to further ease credit conditions.

Chart showing Euro 5Y5Y Inflation Swap Forward

Norges Bank Rate Decision: What to Expect

Much like the ECB, the Norges Bank is not expected to make an adjustment in interest rates, which places the focus on the central bank’s outlook. Stronger growth out of the Eurozone – the destination for over 80 percent of Norway’s exports – may help ease the urgency to cut interest rates. Combined with the recovery in crude oil prices and an improving fundamental outlook, the petroleum-linked NOK may rise.

Economic Data to Watch

This week a cascade of critical economic data out of the US and Eurozone will be published and may elicit significant oscillations in NOK and SEK. Key statistics to watch are: manufacturing PMI out of France, Germany, the US, UK and EU. Stronger-than-expected prints may buttress the notion that global growth is stabilizing, thereby potentially providing a boost to risk appetite and demand for NOK and SEK.

US Dollar Technical Analysis: USD/SEK, USD/NOK Chart Setups

USD/SEK has re-entered a critical support-turned-resistance range between 9.4996 and 9.5323 (white-dotted lines) after bouncing back from the 9.2948 swing-low. If the pair climbs above the upper layer and is met with a daily close, it could mark the start of a bullish spike until it hits the multi-tiered ceiling between 9.6878 and 9.7228 (gold-dotted lines).

USD/SEK – Daily Chart

Chart showing USD/SEK

USD/SEK chart created using TradingView

USD/NOK appears to have cracked the ceiling at 8.9179 (white-dotted line), opening the door to re-testing resistance at 9.0030 (gold-dotted line). This recovery comes after the pair suffered a 4.80 percent decline following a four-month period of congestion. However, fundamental catalysts this week may push USD/NOK lower and cause the pair to retreat.

USD/NOK – Daily Chart

Chart showing USD/NOK

USD/NOK chart created using TradingView

NORDIC FX TRADING RESOURCES

--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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