ECB pin action prompts more easing by Sweden s Riksbank EUR SEK bulls unimpressed

Pin action – the act of forcing pins upon each other in bowling, so that they continue to knock over other pins

Beyond the obvious negative impact on the euro last week, last Thursday’s ECB meeting and press conference is also having a “pin action” effect on Europe-dependent countries.

Earlier today, Sweden’s Riksbank announced its most recent monetary policy decision. While the central bank left its main interest rate unchanged at -0.35%, it did opt to expand its bond buying program by 65B krone to 200B and extend its expiration by 6 months until June 2016. In the accompanying statement, the Riksbank noted that “monetary policy needs to be more expansionary in order to underpin the positive development in the Swedish economy and safeguard the robustness of the upturn in inflation.” Beyond today’s changes, the Riksbank also reiterated that it was prepared to expand stimulus further, even between its scheduled meetings if necessary.

In retrospect, it’s easy to draw a line from the increasingly likely prospect of more stimulus from the ECB later this year to a more expansionary monetary policy in Sweden. After all, eight of Sweden’s nine largest export markets are in Europe, and many of those are members of the Eurozone. Meanwhile, headline inflation remains subdued at just 0.1%, while the country’s measure of “core” inflation is running at 1.0%, well below the central bank’s 2.0% target.

With the Riksbank’s QE program still modest by the current global standards at just 5% of GDP (by contrast, the ECB’s current program will be roughly 9% of the Eurozone’s total GDP), more easing could be coming down the pipeline, sooner rather than later.

Technical View: EUR/SEK

Perhaps one of the most important drivers of the Riksbank’s decision was the fact that the Swedish krone has stopped depreciating against the euro. In the current slow growth, low inflation global environment, no country wants a strong currency, and the recent modest strength in the krone no doubt made Riksbank officials uncomfortable.

Unfortunately for them, traders have actually been buying the krone in the wake of the release, with EUR/SEK falling to 9.33 as of writing. The pair remains within a bearish channel off the late August high near 9.65, and rates may now have a date with previous support at the 78.6% Fibonacci retracement near 9.25. If that support level is broken, ideally accompanied by a breakdown in the RSI below its own support level at 40, a drop toward the 6-month low at 9.16 could be next. Only a break above the bearish channel (currently around 9.50) would shift the near-term bias back to neutral.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.