USD SEK edging lower as Riksbank stands pat

Markets have been relatively quiet so far today with traders primarily adjusting their positions modestly ahead of tomorrow’s highly-anticipated Fed meeting (stay tuned for our full FOMC preview this afternoon).

However, there was one other second-tier central bank in action today: Sweden’s Riksbank. Much like the Swiss National Bank, Riksbank policymakers no doubt breathed a big sigh of relief when the European Central Bank opted for more tentative easing measures two weeks ago, as the half-hearted actions by the region’s behemoth central bank lessened the pressure on its smaller rivals to follow suit.

The Riksbank stuck to the script in today’s meeting, leaving its main repo rate at 0.35% and refraining from expanding its current SEK 200B bond buying program in a unanimous decision. Some market participants were anticipating a modest interest rate cut or expansion of the bank’s quantitative easing program, and the krona has rallied as these traders abandoned their short positions.

Before SEK bulls get too carried away however, it’s worth noting that the Riksbank did include a bit of an “escape clause” in its accompanying statement. Specifically, the world’s oldest central bank explicitly noted that it was “highly prepared” to ease monetary policy even between its scheduled monetary policy meetings. In other words, Sweden’s economy remains vulnerable to any lurches lower in the Eurozone economy, so the Riksbank is at great pains to prevent any unnecessary strength in the krona.

Technical View: USD/SEK

As we noted above, the SEK immediately strengthened in the wake of the release, but that initial burst higher is already starting to fade on the back of the dovish commentary. USD/SEK remains almost perfectly centered in the 8.10-8.85 range that has contained rates for almost the entire year thus far.

It is worth noting that the daily MACD indicator has rolled over a couple of weeks ago and recently crossed back below the “0” level; previous turning points in this indicator have marked significant tops and bottoms in USD/SEK for months. Therefore, rangebound traders may consider looking for more weakness toward the bottom of the range in the lower 8.00s as long as the MACD continues to trend lower.