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US Dollar May Fall vs Swedish Krona on Riksbank, Powell Report

US Dollar May Fall vs Swedish Krona on Riksbank, Powell Report

2020-02-12 05:00:00
Dimitri Zabelin, Junior Currency Analyst
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US Dollar Outlook, USD/SEK Technical Analysis, Riksbank – TALKING POINTS

  • US Dollar may fall vs Swedish Krona on Riksbank rate decision
  • Powell commentary may amplify risk appetite, push SEK higher
  • USD/SEK technical outlook points to bearish correction ahead

RIKSBANK RATE DECISION

The Riksbank is expected to hold rates at zero percent after it exited from negative territory in December of last year. Barring any significant changes to the outlook, Swedish policymakers intend on holding interest rates for the next few years. However, they may be forced reconsider sub-zero lending rates if economic conditions deteriorate to such an extent that it warrants additional easing.

Officials may give a slightly more optimistic outlook from a macro-fundamental perspective in regard to world affairs. The détente in US-China trade tension and tepid fears of a no-deal Brexit have improved sentiment alongside a world-wide trend of economic stabilization. For the cycle-sensitive Swedish Krona, this is certainly a welcome change of pace after suffering from political turbulence in 2019.

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Having said that, the Riksbank may express concern about the cross-continental impact of the coronavirus. While Sweden may not be directly affected by it, its reliance on robust external demand makes it vulnerable to fundamental shocks emanating from outside its borders. On balance, the Swedish Krona may rise vs the US Dollar if the overall message of the Riksbank is more upbeat than what markets had priced in.

Having said that, the domestic fundamental circumstances are sending a chilling message to policymakers. Household indebtedness and a swollen housing market pose a significant risk to the export-oriented economy with the average debt-to-income ratio for every Swede at over 330 percent as of 2017. To learn more about vulnerabilities in Sweden’s financial system, see my Nordic outlook here.

POWELL TESTIMONY

Fed Chairman Jerome Powell struck an overall optimistic note at his congressional testimony in front of the House Financial Services Committee. He said the world’s largest economy is “in a very good place” as fundamental risks like the US-China trade war and Brexit have temporarily subsided. Having said that, Mr. Powell warned about the impact of the coronavirus and the leveraged loan market.

To learn more about these risks, be sure to follow me on Twitter @ZabelinDimitri.

USD/SEK TECHNICAL OUTLOOK

USD/SEK has risen a little over 3.62 percent after it tested the December 31 swing-low at 9.2948. However, it is now approaching a critical cross-section between the uptrend and resistance between 9.68748 and 9.7228. The pair may be in for a bearish correction as negative RSI divergence points to fading upside momentum as USD/SEK price action is becoming more shy as it approaches formidable resistance.

USD/SEK – Daily Chart

Chart showing USD/SEK

USD/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 @ZabelinDimitrion Twitter

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

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