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SEK gains post-CPI, EUR/CHF at danger zone

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Quiet European trading session has been squeezed by SEK rally amid the Swedish inflation surprised on the upside. The Riksbank released October 28th meeting minutes and hinted at more monetary stimulus given the macro environment. The slow Euro-zone growth and low abroad inflation were on the menu.

In Switzerland, the downside pressures on EURCHF raise speculations on SNB intervention. EURCHF trades in tight range of 1.20230/1.20312 so far. We stand ready for SNB intervention if tensions on 1.20 floor do not ease. Some bet for EUR purchases, while interest rate futures price in negative rates.

SEK takes a breather on October inflation pick-up

The Swedish October inflation surprised on the upside in October. The CPI unexpectedly improved to 0.1% on month to October (vs. -0.1% exp. & 0.2% last), the yearly CPI contraction slowed to -0.1% (vs. -0.2% y/y exp. & -0.4% y/y prev).

In a surprise action, the Riksbank has cut its repo rate by an aggressive 25 basis points to 0% in October 28th meeting. The minutes of the meeting showed Swedish officials discussed on “possibilities as other central banks to take further measures to increase the monetary policy stimulus”. The minutes confirmed a “highly expansionary” monetary policy, as Swedish policy makers agreed on the importance of bringing inflation back toward 2% or more. Skingsley said the need for expansive policy requires a delay in repo rate normalization. Concerns on slow Euro-zone recovery and low abroad inflation were emphasized. In the current macro environment, “further cuts in inflation forecasts can’t be ruled out” stated the minutes. There is “small likelihood” of another rate cut according to Riksbank’s Floden.

USD/SEK legged down to 7.4030 post-CPI, dovish Riksbank stance limited the sell-off. Bullish trend lost pace in the morning session, yet the bias is seen positive for a daily close above a distant 7.3360 (MACD pivot).

EUR/SEK remained bid above 2.18/23 supply zone (including 21/50 and 100-dma & July-Oct downtrend top). The 3-month cross currency basis shows better preference for EUR verse SEK. The negative MACD tells EURSEK is currently at bearish consolidation zone. There is possibility for deeper downside correction to be considered as good entry opportunity into long EURSEK positions as long as the critical 200-dma holds. The pair did not trade below its rolling 200-dma in more than a year.

SNB intervention on the wire?

Downside pressures in EURCHF intensify as uncertainties on the outcome of November 30th “gold referendum” increase. Formerly, the “no” outcome was mostly priced in as traders didn’t give much chance for a ”yes victory”. However Swiss voters do not seem heavily against the idea of keeping 20% of SNB’s 522 billion franc assets in physical gold and in Switzerland. The leveraged markets is a sizeable threat for the EURCHF floor. In the option markets, the “yes” pricing pulled the 1-month (25-delta) EURCHF risk reversals to lowest levels in more than a year, the pair is stuck between 1.2000/50. We see large put expiries at 1.20 walking into November 30th. At this stage, we stand ready for SNB intervention should the tensions on 1.20 floor do not ease. In case of SNB intervention, the most likely action would be EUR purchases. While the interest rate futures trade above the par, highlighting that traders also price in the possibility of negative rates to stabilize EURCHF market above 1.20.

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