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by Charalambos Pissouros

Dollar Gains After Solid US Data, SEK Resists After Swedish CPIs

The dollar traded higher against most of the other G10 currencies yesterday, perhaps boosted by the better-than-expected US PPI and initial jobless claims data. The Swedish Krona managed to resist the greenback’s strength, perhaps helped by Sweden’s inflation numbers, which were slightly better than the forecasts suggested.

USD Higher After Better Than Expected PPIs and Jobless Claims

The dollar traded higher against most of the other G10 currencies on Thursday. It gained the most against JPY, AUD and NZD, while it underperformed slightly only against EUR. The greenback was found virtually unchanged versus SEK and CHF. Following a very busy Wednesday, with the EU summit on Brexit, the ECB meeting, the Fed minutes, as well as the US CPIs, Thursday was lighter, allowing second-tier data to move the FX market. The drivers behind the dollar’s rebound may have been the better-than-expected US PPI and initial jobless claims data.

USD performance G10 currencies

Getting the ball rolling with the PPIs, the headline rate rose to +2.2% yoy in March from +1.9%, the fastest in five months amid a surge in gasoline prices. The core rate ticked down to +2.4% yoy from +2.5%, but that was in line with expectations. The PPI data come just a day after the headline CPI rate rebounded to +1.9% yoy from +1.5% and suggest that it could move somewhat higher in the months to come, at least matching the Fed’s objective of 2%. With regards to the initial jobless claims for last week, they dropped to a 49 1/2 – year low of 196k from 204k the week before, beating expectations of a rise to 211k. The claims point to a sustained strength in the labor market, and combined with the PPIs, they may have eased concerns that the world’s largest economy is rapidly losing steam. 

US CPI vs PPI inflation

That said, the data is far from suggesting that a 2019 hike could be brought back under the Fed’s microscope. Indeed, several Fed policymakers reiterated yesterday that the Fed remains in a wait-and-see mode, with Vice Chair Richard Clarida noting that interest rates are now in the broad range of neutral. Another point is that St. Louis Fed President James Bullard said that he is in favor of removing the “patient” wording and replacing it with a more neutral language. In our view, this means that he sees the patience stance as a pause in further hikes, and that he would prefer a language suggesting that rates could move in either direction. Basically, he may want to formalize what was revealed in the minutes of the previous meeting. Market participants appear to agree as well. Despite the positive US data, they were not tempted to place any hike bets on the table according to the Fed fund futures. They just took off some of the cut ones. The probability for interest rates to be lower has declined to 48% from 54% yesterday morning.

US Fed funds futures Market vs FOMC rate expectations

With regards to the dollar, it may continue gaining for a while more, but we are reluctant to trust outperformance against all the other G10 currencies. We would be more confident on some dollar strength against the yen. Having in mind the optimism surrounding the US-China trade sequel, as well as yesterday’s headlines that the EU is willing to enter formal talks with the US in order to ease tensions before they escalate to tit-for-tat tariffs, we see the case for the safe-haven currency to stay pressured for a while more, as investors may prefer to examine increasing their risk exposure.

USD/JPY – Technical Outlook

On Wednesday, USD/JPY tested its short-term upside line taken from the low of March 25th and rebounded strongly. On Thursday, the pair accelerated, making its way back to last week’s high, near the 111.83 barrier. With such a strong move back up, there might be a chance to see a follow-through in the same direction. The upside idea is currently supported by our oscillators, the RSI and the MACD, which are showing the positive momentum picking up again. But in order to get slightly more comfortable with the upside, we would need to see a break above the 111.83 barrier first.

Before traveling higher, USD/JPY might retrace slightly back down and test the 111.58 support zone, which previously acted as a good resistance on April 9th. If this is the area where the bulls are comfortable to step in again, we may see the rate accelerating and breaking above the previously-mentioned 111.83 barrier. This is when we will examine the next potential target, at 112.15, which is the highest point of March. The pair might get held near that hurdle until the bulls and the bears figure out who will take control from there.

Alternatively, in order to shift our short-term view back to the downside, we would need to see, not only a break below the aforementioned upside support line, but also a rate-drop below the 111.29 hurdle, marked near the lows of Wednesday. That way the pair would confirm a forthcoming lower low and might slide further, aiming for the 110.55 obstacle, a break of which could drag USD/JPY towards the 110.25 level, which is marked by the low of March 27th and the high of March 25th.

USD/JPY 4-hour chart technical analysis

SEK Resists USD Strength Due to Swedish Inflation Data

The Swedish Krona was one of the currencies that managed to resist the greenback’s strength, with USD/SEK trading virtually unchanged. SEK stood tall, perhaps after Sweden’s inflation data came out somewhat better than expected. The CPI rate remained unchanged at +1.9% yoy, instead of ticking down to +1.8% as the forecast suggested, while the CPIF one slid to +1.8% yoy from +1.9%, but this was in line with the consensus. Most importantly, the core CPIF rate, which excludes energy, ticked up to +1.5% yoy from +1.4%.

Sweden CPIs inflation

At its latest meeting, in February, the Riksbank decided to keep interest rates unchanged at -0.25%, reiterating that the next increase is likely to come during the second half of 2019, and yesterday’s inflation data may have reinforced market participants' expectations on that front. That said, we prefer to adopt a somewhat less optimistic stance. Yes, on March 5th, Riksbank Deputy Governor Cecilia Skingsley noted that the plan remains for higher interest rates later this year, but this was two days before the ECB gathering, at which Draghi and co. decided to abandon plans for higher interest rates this year. Thus, given that in previous years the Riksbank has been usually following the footsteps of the ECB, we would like to wait for the upcoming meeting, on April 25th, to confirm whether officials are still willing (or not) to bring Swedish rates to zero later this year.

EUR/SEK – Technical Outlook

EUR/SEK continues to move sideways between roughly the 10.395 and 10.505 levels. But from the start of this week, the pair has been curving back to the upside and yesterday it managed to break above the 10.454 barrier, marked by the April 2nd high, and also to travel above the 200 EMA on the 4hour chart. For now, we will stick to the upside and aim for slightly higher areas.

If the rate acceleration continues, the pair could easily make its way to the 10.485 obstacle, which may provide temporary resistance. Although the rate overshot that level on March 22nd and 28th, still, it failed to remain above it and retraced back down. If the buying doesn’t end there, the next step for EUR/SEK could be to challenge the 10.505 zone, which marks the peak of March 28th.

On the other hand, a sharp reversal back below the 200 EMA and a break below the 10.437 hurdle, marked by yesterday’s intraday swing low, might spook the bulls from the field. This could allow the bears to jump in and drive the rate towards the 10.416 area, which is near yesterday’s lowest point. If that zone fails to withhold the bear-pressure, a break of it might push the pair to re-test the 10.395 support barrier, which held the rate from moving lower throughout the end of March and the beginning of April. 

EUR/SEK 4-hour chart technical analysis

As for Today’s Events

The calendar appears even more light today. From the Eurozone, we get industrial production for February, while from the US, we have the preliminary UoM consumer sentiment index for April. Eurozone’s IP is expected to have declined 1.0% mom after rising 1.4% in January, while the UoM sentiment index is anticipated to have slid to 98.0 from 98.4 in March.

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