Sweden: Back to deflation
The dollar was higher Tuesday morning in Europe against all its G10 counterparts. The main loser was the Swedish Krone recording loses of more than 1% against the US currency. SEK collapsed after Sweden’s CPI fell 0.1% yoy in October missing estimates of +0.1% yoy. Sweden unexpectedly returned to deflation last month and the question is if Riksbank will be forced to cut interest rates again. The pound was also lower against the greenback after CPI data for October showed that UK inflation decelerated more than the consensus forecast. CPI rose 2.2% yoy, the lowest rate since September 2012 and well below forecasts of 2.5% yoy. This brings the rate closer to the Bank of England’s target. The focus now is on tomorrow’s inflation report and the Bank's new economic forecasts. The Bank pledged not to reduce stimulus at least until the unemployment falls to 7%. The projections in August were that the threshold wouldn’t be reached until the end of 2016. Governor Carney will publish the new projections at a press conference tomorrow.
The USD/SEK surged after the lower-than-expected Swedish CPI data for October. The rally was halted by the 6.6469 (R1) resistance hurdle, near the 161.8% Fibonacci extension level of the 16th -28th Oct. decline. If the price manages to overcome that level, extensions might be triggered towards September’s highs at 6.6885 (R2). Nonetheless, the RSI indicates overbought conditions and if we see it crossing below 70, I would expect a short-term corrective wave, before the uptrend resumes. The overall trend of the pair is an uptrend, as confirmed by the blue trend line and the bullish crossover of the moving averages. On the daily chart, a completed double bottom formation is identified, favoring the continuation of the trend.
• Support: 6.6057 (S1), 6.5539 (S2), 6.5143 (S3)
• Resistance: 6.6469 (R1), 6.6885 (R2), 6.7132(R3)
USD/SEK Intraday Chart" title="USD/SEK Intraday Chart" width="1729" height="748">
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