SEK Volatility Ahead: CPI Data, US-China Trade War, ZEW Survey
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SEK, TALKING POINTS – SWEDEN CPI, TRADE WARS, GERMAN ZEW SURVEY
- SEK traders nervous ahead of Sweden CPI
- US-China trade war driving market volatility
- SEK, NOK eye German ZEW survey reports
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NORDIC FX VOLATILITY: SWEDEN CPI, TRADE WARS
The Swedish Krona and Norwegian Krone are projected to have the highest implied volatilities out of all the G10 currencies. In second place, SEK will be closely watching today’s release of Sweden’s CPIF data. Year-on-year price growth is expected to show 2.0 percent, though analysts and Riksbank officials have repeatedly overshot their forecasts – perhaps an indication that economists are overly optimistic.
As outlined in the last Riksbank policy meeting, officials expressed concern and frustration over the country’s weaker-than-expected inflation. The continuation of expansionary monetary policy is also raising domestic risks of rising household indebtedness. With attractively low borrowing rates, Swedes are finding themselves incurring more debt because of the comparatively low cost of capital.
Fundamental themes of slower global growth, regional weakness in Europe – Sweden’s biggest client – and souring US-China trade war may prompt the central bank to delaying its rate hike cycle. As an export-driven economy, the Swedish Krona is sensitive to changes in global sentiment (see chart below), and will therefore almost always respond when domestic, regional and global growth prospects are put into question.
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NORWAY GDP: NOK REACTION
Following the release of subpar Norwegian GDP, USD/NOK oscillated and extended long wicks on both ends before climbing higher. The poor data will likely reinforce the pair’s bullish drive while fundamental themes continue to act as a tailwind. As sentiment and volatility increase, anti-risk demand may fuel the rise of the US Dollar at the expense of the crude oil-linked Krone.
EUROPEAN EVENT RISK: GERMAN ZEW SURVEY
In Germany, local CPI and potentially market-disrupting ZEW survey data will be published. The latter has recently begun to garner greater attention as investors use the sentiment gauge as a thermometer for the health in the Eurozone’s largest economy. Riksbank Deputy Governor Martin Floden expressed concern about slower growth in Germany as his top risks next to Brexit and the US-China trade war.
The German economy and export-heavy DAX may be put under additional pressure as US President Donald Trump decides on whether to impose auto tariff against Europe on the grounds that it poses a national security risk. However, a recent WTO ruling has made it more difficult for countries to use Article 21 – a measure used to justify tariff impositions on the basis of national security. This has been Trump’s modus operandi.
Other peripheral fears in Europe – such as the divergence in US and EU foreign policy toward Iran – may create an inhospitable backdrop for trade negotiations. A growing concern that will likely dominate headlines towards the end of the month are the upcoming European Parliamentary elections. A source that works closely with Italian parliamentarians – who has chosen to remain anonymous – told me “Usually people downplay these sorts of things, but this year it’s serious”.
CHART OF THE DAY: NORDIC FX AMONG TOP MOST VOLATILE G10 CURRENCIES
NORDIC TRADING RESOURCES
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--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitri on Twitter
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.