Kroner Update (SEK, DKK, NOK)

Thanks for idea from GS

market rumors : Ukrainian traders sell EUR/NOK & CHF/NOK in hefty volumes ))

usdnok

Message from my broker:

Dear NOK traders, don’t get excited prematurely. Only because the inflation target has suddenly been reached with the inflation data for January since Norges Bank lowered its inflation target from 2.5% to 2.0% does not mean that Norges Bank will hike its key rate imminently so that krone has to appreciate. At its January meeting Norges Bank pointed out that “there was a continued need for an expansionary monetary policy“. After all capacity utilisation remains below normal levels. Moreover Norges Bank forecast an inflation rate of 1.9% for 2018 and 1.8% for 2019 in its last monetary policy report. That means that Norges Bank had expected a notably lower inflation rate than the inflation target for some time anyway and had nonetheless signalled a first rate hike before year-end. It is unlikely to change this approach as the result of one single inflation result (January: +2.2%, core rate +1.4%) that is now suddenly above target, in particular as it keeps stressing its flexibility in reaching its target - which means that inflation can sometimes overshoot the target or remain below as long as it is on or close to target medium term. That means that Norges Bank is going to want to wait for further data. But of course the new inflation target means that it can underline that a first rate hike will take place in the autumn with more credibility. NOK appreciated considerably following the inflation data so that a small change in Norges Bank’s wording is unlikely to provide much support now.

NOK view: The expansion of new macro-prudential measures in Norway is likely to help housing market soft landing. I think the cooling of the housing market will not prevent monetary policy normalization and I remain bullish on NOKSEK. A hawkish tilt by the Norges bank on today could further support this view. I like SEK short positions on the basis of Riksbank’ dovish stance and soft economic fundamentals.

After the Norwegian government last week lowered the central bank’s inflation target from 2.5% to 2% the market is likely to follow Norges Bank’s meeting today with particular interest. Of course the question arises as to whether the change will affect the central bank’s future approach, in particular as inflation jumped from 1.8% to 2.2% in February, thus slightly exceeded the inflation target. As a result some market participants are expecting Norges Bank to bring its forecast for a first rate hike forward from December to September of this year, a step that would no doubt constitute a positive signal for the Norwegian krone. I too believe that it will raise its rate path in one of its next meetings and that the first rate hike will happen in the autumn. This has nothing to do with the change in the inflation target though, as Norges Bank had signalled a rate hike for the end of this year despite the fact that it had forecast at the same time that inflation would remain below its previous target of 2.5% over the coming years. Instead our expectations that Norges Bank will start normalising its interest rates even earlier than it has signalled so far is based on our positive growth outlook. However, regardless of why it raises the rate path in the end NOK will benefit either way. I like NOK.

Trade idea - Short EURNOK, which provides a carry buffer, targeting the summer 2017 lows (9.22-9.25) and for leveraged investors 3m 1x3 put spreads are the best way to play a likely grind lower. Norges Bank normalization is underpriced while improving data, attractive valuations and cleaner positioning make a EURNOK grind lower very likely in the coming months. The recent technical break below suggests the move lower has already started. I like NOK

Sweden's Unemployment rate out in 20 mins. Last month it was 6.3%.

USDSEK Daily resistance at this level from a few months ago.


USDSEK Hourly we have a trendline a few days old.

double bottom neckline breakout trade, buy at 8.5350, tp 9.14, sl 8.3631.

Riksbank Monetary policy and other Swedish data out in 20 mins.. will likely be dovish given wage developments are still weak and that core inflation CPI excluding energy continues to undercut the Riksbank's forecasts..

fading it up here back to yesterdays high which is good support on the hourly

forgot to mention the pair, its USDSEK.

In March Norges Bank signalled an imminent rate hike right after the summer, thus bringing its rate path forward. The reason behind that is its positive view of economic developments. Even though the core rate of inflation remains low, Norges Bank was confident that it was going to rise as a result of rising capacity utilisation and rising wages. I am a little more sceptical. Inflation developments for most of Norway’s trade partners are still not developing as desired. If Norges Bank changes its inflation target stating the fact that the differential towards its trade partners as being no longer justified, it should also take a look at inflation developments in the countries around it when assessing its outlook for domestic inflation. Despite its economic optimism Norges Bank remained cautious in March again. It spoke out in favour of a “cautious approach” as far as rising interest rates were concerned. This is exactly the approach it is going to demonstrate today. It has no reason to signal an imminent end of its expansionary monetary policy; it can still do so in June when it publishes its new forecasts in its next monetary policy report. I therefore assume that today’s meeting will not provide any major news and as a result should be neutral for Norwegian krone. The only risk I see is Norges Bank sounding more cautious, which would put pressure on NOK...

Still in my usd/sek trade. My original entry got stopped out during pullback as I moved up my stop, maybe shouldn’t moved my stop too tight. My add on trade still going. Big move last night. Smove trade this one! Will post up a chart later in the day.

The Swedish krona recorded a significant jump to the upside as a result of yesterday’s Riksbank meeting. Clearly the central bank’s rhetoric was perceived as being more hawkish than expected; although all it did was to raise its inflation forecast slightly, whereas the rate path remained unchanged. It continues to plan to hike interest rates towards year-end, which came as a surprise to the majority of market participants. In my view the expectation of a more cautious Riksbank is likely to be due to the last ECB meeting, when the European central bankers dampened the rate outlook. As the Swedish central bankers so far closely followed the ECB’s monetary policy to prevent strong krona appreciation against the euro the market had now also expected Riksbank to be dovish. This assumption was not completely unfounded. However, most recently the krona was a long way away from appreciating too quickly against the euro. On the contrary: since the beginning of the year the krona has been the weakest currency in the G10 universe. Moreover the Swedish economy has recorded strong growth and inflation has hovered around Riksbank’s target already since last year. Because of this, I too expect Riksbank to hike rates at the end of the year. However, old habits die hard. The central bank is unlikely to signal an aggressive rate hike cycle as it will not want to risk the unwanted strong appreciation of the currency after all. I therefore continue to see only limited appreciation potential for the krona this year.

GBPNOK

please elaborate

The imminent parliamentary elections in Sweden are repeatedly given as the reason why the krona is coming under pressure. Concerns about an election victory of the nationalist Swedish Democrats (Sverigedemokraterna, SD) are worrying investors. In some ways that is understandable, as the SD favours an improvement of the welfare and health system as well as lower taxes. The implementation of election promises of this nature without matching funding might lead to irresponsible budget policies in Sweden long term. However, the support for the party is based mainly on other issues. It is attracting voters with a promise of stopping immigration, the state of law and euro scepticism. And it is the latter that the financial market focus on. Concerns about a “Swexit” remains unfounded in our view, though, as noted in June, even if the SD would receive 19-20% of votes on 9th September according to recent polls and would thus become the second party in parliament. The other parties have refused to cooperate with SD in parliament. Of course an important coalition partner would therefore become unavailable, forcing the other parties to cooperate more closely. But a minority government (without the SD) should not shock anyone any longer as the Swedes are very familiar with this system. My gut feelings mean I understand the investors, but fear has never been a good advisor. A glance at the facts tends to be more reliable. And they point towards a strong krona thanks to solid fundamental data and an earlier monetary policy normalisation than in the euro zone.

It is not due to growth that Norges Bank refrained from commenting on monetary policy after September last week. The economy is likely to have grown again up North in Q2 and not only as a result of the oil price - as the Q2 GDP data confirmed this morning. Norges Bank will probably only want to comment on what it imagines the future rate path to look like in more detail after the publication of the next monetary policy report in September. As the inflation trend has risen and growth is solid I can imagine that in addition to the announced rate hike Norges Bank will signal in September that in the future interest rates will be hiked a little more quickly than previously expected. The relatively weak krone provides the required scope for Norges Bank. Until then the krone will continue to suffer as a result of increased risk aversion on the market and a generally weaker oil price. As a result we will have to wait until at least mid-September, possibly longer, until NOK can really make the most of its monetary policy advantage over the euro.