SEK Strengthens On Higher Inflation Path

Daily Forex Fundamentals | Written by AC-Markets | Jan 12 10 10:07 GMT |

News and Events: This morning's Swedish CPI came in at a firmer than expected 0.2% MoM, 0.9% YoY, against consensus estimates for 0.1% MoM, 0.7% YoY. Indeed today's reading brings the annualized headline CPI surging back into positive territory for the first time since April 2009 and seems to confirm suspicions that the Riksbank's current inflation forecast is incorrect. The steady increase in CPI from Sweden adds to the backdrop of improving fundamentals demonstrated at the end of last year, and points to the possibility of further SEK strength in 2010. The unemployment rate has continued to show encouraging signs of decline to 8.0% at the last print (down from the June 2009 peak of 9.8%), and although volatile on a monthly basis, annualized retail sales growth and industrial production also look to have passed the trough in the cycle. The Riksbank members have, up until now, erred toward the cautious side in giving their assessments of the recovery - but recent comments from Riksbank Deputy Governor Lars Nyberg suggested that the bank needed to 'begin a normalization of the repo rate' from its 'crisis' level of 0.25% during the spring or summer. We anticipate that the Riksbank will soon need to discard its lingering dovish caution as inflation continues to tick higher, and anticipate rates will rise to 1.00% in the course of 2010. For the remainder of the day, there is very little in the way of economic releases due that will have much impact on FX markets. For the most part, equity markets and USD weakness have been trading in tandem - following the same correlation that was in play for much of 2009. We expect most major currency pairs to track equity movements today, and also in the coming weeks as the headlines of Q4 earnings season gets into full swing. Today Key Issues: 13:30 USD Trade balance, $ bn Nov exp: -34.6 prev: -32.9 The Risk Today: EurUsd Yesterday's break above 1.4484 key resistance and daily close above 1.4500 keeps focus on the next upside levels of 1.4570 (38.2% retrace of 1.5145-1.4218) and 1.4590 (16 Dec highs). Despite this morning's USD retracement, 1.4450 looks to be providing interim support, and below there lies the more significant support zone between 1.4250/80. Markets seem to be adjusting their bearish EURUSD outlook, which would suggest upside potential near term and a return to 1.4800, only a close below 1.4250 would reinstate a look at the downside targets around 1.4000. GbpUsd The strong reversal above the bearish trendline resistance at 1.6150 gives the pair a bullish tone, but so far, 1.6200 has formed good resistance to the post-NFP rally, and the 200-day moving average at 1.6126 has provided a cap on today's range. We still expect prior resistance levels to be in play: 1.6248 (Dec 18 highs), followed by 1.6307 (100 day moving average), and above there the 1.6400 psychological barrier. UsdJpy USDJPY has been trading heavy today, but it still looks like we will remain range bound between the range lows of 91.10 lows and decent supply ahead of 94.00. After meeting good supply at the top of the two-and-a-half year downtrend, risks are skewed to the downside; a break below 91.10 would indicate a resumption of the larger downtrend that has been in play since mid 2007, but expect bids ahead of trendline support at 91.10, and then at before 90.60. Selling interest at 92.50 marks the top of the intraday range for now. UsdChf Yesterday's strong move through 1.0225 touched lows of 1.0131 late in the European session, just ahead of ket retracement levels at 1.0115. 1.0225 now represents an area of good supply, with further resistance expected around 1.0350 and beyond there at 1.0500. Focus now turns to the downside as traders eye a revisit of 1.0130, 1.0090, and thereafter 1.0000. EURUSD GBPUSD USDJPY USDCHF 1.4665 1.6335 95.00 1.0350 1.4600 1.6235 94.00 1.0295 1.4575 1.6195 93.77 1.0225 1.4475 1.6090 91.85 1.0195 1.4410 1.6020 91.10 1.0115 1.4330 1.6000 90.00 1.0090 1.4300 1.5900 89.10 1.0000 S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot ACM FOREX Disclaimer: This report has been prepared by AC Markets (thereof ACM) and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Salesperson or Traders of ACM at any given time. ACM is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.