• EUR/SEK trades without a clear direction near 10.40 on Tuesday.
  • Riksbank left the policy rate unchanged at its meeting.
  • Riksbank’s Ingves said the bank can expand the balance sheet if needed.

EUR/SEK now alternates gains with losses in the 10.40 region, as market participants continue to digest the recent Riksbank monetary policy meeting.

EUR/SEK unchanged on Riksbank decision

EUR/SEK is prolonging the multi-session side-lined theme so far on Tuesday, gyrating around the 100-day SMA in the 10.40 region following the Riksbank event earlier in the European morning.

In fact, the Swedish central bank left unchanged its policy rate at 0.0% on Tuesday, broadly in line with market expectations.

The central bank sees the Nordic economy recovering from the recent sharp pullback, although still amidst high uncertainty. The Riksbank now expects the economy to contract 3.6% this year and to expand 3.7% in 2021 and 2022. Regarding inflation, the CPIF (CPI at constant interest rates) is seen rising 0.6% in 2020, 1.1% in 2021 and 1.3% in 2022.

The key interest rate is seen unchanged at the current 0.0% level at least until Q3 2023.

Following the central bank’s interest rate decision, Governor S.Ingves said the balance sheet can be expanded considerably in case of need, at the time when he defended the bank’s lending programmes and the QE when comes to keep rates at low levels.

EUR/SEK levels to consider

At the moment, the pair is losing 0.02% at 10.4067 and faces the next support at 10.3447 (low Sep.18) seconded by 10.3243 (55-day SMA) and finally 10.2570 (low Aug.27). On the upside, a move above 10.4297 (monthly high Sep.21) would target 10.5461 (200-day SMA) en route to 10.5959 (monthly high Jun.19).

  • EUR/GBP witnessed an intraday turnaround from one-week tops set earlier this Tuesday.
  • The sterling got a goodish lift after BoE Governor downplayed speculations of negative rates.
  • Mixed Brexit-related headlines held the GBP bulls on the defensive and helped limit the slide.

The EUR/GBP cross had some good two-way price swings through the mid-European session and now seems to have stabilized in the neutral territory, around the 0.9175 region.

The cross built on its recent bounce from the 0.9080 region and shot to one-week tops, around the 0.9220 region during the first half of the trading action on Tuesday. The momentum quickly ran out of the steam after the BoE Governor Andrew Bailey downplayed expectations of negative interest rates.

This coupled with some positive Brexit-related headlines provided an additional boost to the British pound. Adding to this, an offered tone surrounding the shared currency, prompted some fresh selling and dragged the EUR/GBP cross to an intraday low level of 0.9144, albeit lacked any strong follow-through selling.

Meanwhile, the Brexit optimism turned out to be short-lived after Ireland’s foreign minister, Simon Coveney said that there is a growing sense that perhaps Britain doesn’t want a Brexit deal. Coveney further added that the UK government tactic is making complex talks even more difficult.

Separately, the UK Prime Minister Boris Johnson outlined new coronavirus restrictions for England. The rules weren’t that harsh to jeopardise the economy, though Johnson’s warning to introduce greater restrictions if this does not work took exerted some fresh pressure on the sterling.

The EUR/GBP cross quickly recovered around 30 pips from daily lows and was last seen hovering near the 0.9170-75 region. In the absence of any major market-moving economic releases, the incoming Brexit headlines will influence the pound and produce some short-term trading opportunities.

Technical levels to watch

 

  • Philly Fed Nonmanufacturing Index edged higher in September.
  • US Dollar Index clings to modest daily gains above 93.60.

The headline Diffusion Index of the Federal Reserve Bank of Philadelphia’s Nonmanufacturing Business Outlook Survey improved to 8 in September from 1.6 in August, the monthly data showed on Tuesday.

Key takeaways

“Wage and Benefit Cost Index dropped to 13.1 in September from 14.6 in August.”

“Firm-level Business Activity Index edged higher to 20.4 in September from 17.9 August.”

“New Orders Index fell to 8.5 in September from 11.6 in August.”

“Full-time Employment Index improved to 5.1 in September from -3.0 in August.”

Market reaction

The US Dollar Index showed no significant reaction to this data and was last seen gaining 0.12% on the day at 93.66.

 

  • GBP/USD staged a goodish intraday recovery from the 200-DMA support.
  • The uptick got an additional boost from positive Brexit-related headlines.
  • The UK PM Johnson announced new restrictions to curb virus outbreak.

The GBP/USD pair jumped back above mid-1.2800s during the mid-European session, albeit lacked any strong follow-through buying and quickly retreated over 50 pips from daily tops.

The pair witnessed some aggressive short-covering move from the vicinity of the 1.2700 mark – nearing the very important 200-day SMA – after the BoE Governor Andrew Bailey downplayed expectations of negative interest rates. The strong intraday recovery movement got an additional boost from positive Brexit-related headlines. EU source reportedly said that Brexit talks have been going a bit better than expected and that there is a ‘window of opportunity’.

Separately, Ireland’s foreign minister, Simon Coveney was noted saying that there is a growing sense that perhaps Britain doesn’t want a Brexit deal and the UK government tactic is making complex talks even more difficult. Meanwhile, the UK PM spokesman confirmed the EU Chief Brexit Negotiator Michel Barnier’s visit tomorrow for informal talks. The spokesman further stressed that the UK will continue to work hard on securing a Brexit deal.

Nevertheless, the GBP/USD pair moved into the positive territory and shot an intraday high level of 1.2867. The uptick was further supported by a softer tone surrounding the US dollar amid a modest recovery in the US equity markets.

In the latest developments surrounding the coronavirus saga, the UK Prime Minister Boris Johnson announces new restrictions for England. The GBP/USD pair witnessed a modest pullback and was last seen hovering in the neutral territory, around the 1.2810-1.2800 region. It will now be interesting to see if the pair is able to capitalize on the move or the attempted recovery meets with some fresh supply at higher levels. This makes it prudent to wait for some strong follow-through buying before placing fresh bullish bets.

Technical levels to watch

 

British Prime Minister Boris Johnson announced on Tuesday that they will be introducing new COVID-19 restriction measures but noted that they will not be returning to a full lockdown as they did in March, as reported by Reuters.

The PM said that they will be dropping the plan to allow people back into the sports stadiums and added that pubs and hospitality venues will be closing at 10 PM from Thursday.

Market reaction

The British pound came under modest bearish pressure following these comments. As of writing, the GBP/USD pair was up only 0.05% on a daily basis at 1.2821.

Additional takeaways

“Up to 30 people can attend a funeral.”

“Tthese rules will only work if people comply.”

“These rules will be enforced by tighter penalties.”

“Businesses will be fined for breaking the rules.”

“I must emphasize that if R does not go below 1, there could be more restrictions.”

“We have extra firepower.”

“We should assume that the restrictions go on for 6 months unless there is progress.”

“We will not let the virus rip nor have a permanent lockdown.”

“House will have every opportunity to scrutinise these decisions.”

“If we fail to act together now, we will put others at risk and jeopardise our own futures with more drastic action.”

“The majority of the UK economy can continue moving forward.”

Ireland’s Foreign Minister Simon Coveney said on Tuesday that the Brexit message from European Union’s chief Brexit negotiator, Michel Barnier, is clear: “The EU will remain firm and realistic.”

Additional takeaways via Reuters

There is disappointment across the EU, trust is damaged.”

“Strong focus remains on bigger picture for the EU.”

“Trust and confidence in negotiators remains as strong as ever.”

“Brexit implementation has to be consistent with protocols.”

“Concerning that there is growing sense that perhaps the UK doesn’t want a deal.”

“I believe the UK government wants a deal.”

“This is very damaging to Britain’s reputation outside of Brexit bubble talks.”

“If legislation (Internal Market Bill) continues, the EU will respond legally.”

“No agreement on fisheries will lead to extraordinary uncertainty in the UK and the EU.”

Market reaction

The GBP/USD pair largely ignored these remarks and was last seen gaining 0.1% on the day at 1.2837.

  • USD/CAD rose to its highest level in more than a month on Tuesday.
  • US Dollar Index is consolidating Monday’s gains above 93.50.
  • WTI is retracing Monday’s losses, trades around $40.

The USD/CAD extended its rally during the first half of the day on Tuesday and touched its highest level in more than a week at 1.3346. However, the pair lost its bullish momentum ahead of the American session and was last seen posting small daily losses at 1.3297.

WTI rebound supports CAD

Crude oil prices suffered heavy losses on Monday amid demand concerns and the barrel of West Texas Intermediate lost more than 3%. With the market mood improving modestly, the WTI staged a rebound and was last seen gaining more than 1% on the day at $40.05, helping the commodity-sensitive loonie stay strong against its rivals.

On the other hand, the greenback seems to be having a difficult time preserving its strength as markets wait for FOMC Chairman Jerome Powell and US Treasury Secretary Mnuchin to testify before the House Financial Services Committee. Investors don’t expect Powell to deliver any surprising remarks on the policy outlook and will be looking for fresh insights into the next coronavirus aid bill.

A negative reaction in Wall Street’s main indexes could help the DXY regain its traction. Meanwhile, S&P 500 futures are posting modest gains on the day, pointing out to a moderately higher opening in US stocks. . 

The US Dollar Index, which gained 0.6% on Monday, is currently virtually unchanged on a daily basis at 93.55.

Technical levels to watch for

 

The Reserve Bank of New Zealand (RBNZ) is scheduled to announce its monetary policy decision on 23 September at 02:00 GMT. The market consensus is for the RBNZ to stay on hold and keep the Official Cash Rate (OCR) unchanged at a record low of 0.25% for the fourth straight month in September. As we get closer to the release time, here are the expectations forecast by the economists and researchers of six major banks regarding the upcoming central bank’s meeting. 

See – NZD/USD: The sharp reversal lower comes to a halt ahead of the 55-DMA at 0.6633 – Credit Suisse

ANZ

“ We expect a dovish tone at Wednesday’s Monetary Policy Review, reiterating that a lower OCR and bank “funding for lending” program are next up. The RBNZ is unlikely to change its forward guidance that the OCR will be left unchanged until March.  We also expect the RBNZ to continue its evolution towards a more tactical approach to its weekly LSAP purchases, given recent curve steepening.”

Westpac

“We expect no change in monetary policy next week. Data has been to the strong side, but the RBNZ will bank that without reaction. The RBNZ will reiterate that it intends to provide substantial monetary stimulus for as long as necessary and will remind us that it is preparing to deploy a negative OCR combined with cheap funding for banks, in case this is required in the future. We continue to expect that the bond-buying programme will run out of ammo before the battle is over. We, therefore, expect that the RBNZ will indeed have to deploy a negative OCR, in April next year.”

Standard Chartered

“We do not expect any changes to policy at this meeting after the central bank expanded the size and extended the duration of its Large Scale Asset Purchase (LSAP) programme in August. We expect the RBNZ to maintain its dovish tone though. Following the Jackson Hole event, Assistant Governor Hawkesby commented that the RBNZ’s ‘least regrets’ approach to policy could, like the Fed, see it allowing inflation to run above target for some time after a period of weakness. The central bank has expressed its preference for negative rates, supplemented by a term lending programme, as the next likely option after LSAP. We recognise the RBNZ’s firm accommodative stance and commitment to achieving its dual mandate of stable inflation and maximum sustainable employment, but are sceptical of the effectiveness of negative rates in achieving these objectives and therefore maintain our call for unchanged policy rates in 2021.”

ING

“Since the August policy meeting – when QE was expanded – RBNZ speakers have reiterated the bank’s readiness to add stimulus if necessary and a dramatic GDP contraction in 2Q (-12.4% YoY) left little doubts this meeting while be characterised by a similarly dovish tone. Still, we do not expect any cut or new policy measure at this meeting, with the Bank likely taking its time to fully assess the implications of a move to negative rates and wait for more data to gauge the impact of new lockdown measures in Auckland in August. With most of the RBNZ dovishness in the price, we suspect markets would be particularly reactive to the RBNZ announcement only if there is a surprising shift in language, with particular focus on any currency-related comments.”

TDS

“RBA Dep. Gov. Debelle delivers a speech on ‘The Australian Economy and Monetary Policy’. Focus likely to centre on lowering the cost of funding for semis via upsized TFF. Re RBNZ, unanimous expectation for the Bank to keep the cash rate on hold at 0.25% till Mar’21, with the Bank to reinforce willingness to deploy negative rates.”

Bannockburn

“The RBNZ is widely expected to leave policy on hold, and while a negative cash rate is possible at some juncture, it seems unlikely in Q4.”