SWEDEN: Dovish Riksbank Minutes Pulls Front-end Yields Lower
Feb-04 11:21
This morning’s dovish set of Riksbank minutes sees the SEK FRA curve down 1.5-6bps across the front five contracts. This in turn has driven SEK FX underperformance versus the G10 basket.
- A reminder that the minutes saw Deputy Governor Jansson suggest he may vote for a cut in March, and Deputy Governor Seim soften her previously hawkish-leaning stance. While the base case is still for the policy rate to remain at 1.75% going forward, the risk of a cut has clearly risen. That places increasing focus on Friday’s flash January inflation reading.
- The dovish signals are reflected in rate market pricing, with the Sep26-Dec26 FRA down 4bps to 1.925% today, now ~8.5bps below yesterday’s 3M STIBOR fixing. This contract was trading around 2.10% in early January.
- EURSEK is up 0.65% to 10.5907. The magnitude of the bounce is likely being exacerbated by positioning dynamics. Morgan Stanley’s options-based positioning metrics assigned a 77/100 long score to EURSEK according to data as of Jan 30. The technical outlook in EURSEK remains bearish for now though, with rallies short of the 20-day EMA at 10.6393 considered corrective.
- NOKSEK is up 0.3% to 0.9272, off session highs of 0.9286. A short-term bull cycle remains in play, though the cross has struggled to push through resistance at 0.9276 in recent sessions (Dec 4 low and prior breakdown level).
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SWAPS: Long End EUR Swap Spreads Consolidate Recent Pullback, Dutch Impact Eyed
Jan-05 11:17
Long-dated German and EUR swap spreads are little changed on the day, holding the narrowing seen in recent sessions (German 30-Year spread is ~3.5bp off the Dec high).
- EUR550-600bln of Dutch pension fund assets transitioned to a defined contribution system from a defined benefit system on 1 January, which poses well-documented structural pay-side risks to long dated swaps in Europe.
- Uncertainty around the exact timing of the related flows (which is set to be dynamic as opposed to all at once, in order to facilitate smoother market digestion), coupled with already meaningful moves in swap spreads (German 30-Year swap spreads are ~30bp off ’25 lows), may have provided some downward pressure for spreads in recent sessions.
- Commerzbank are wary of chasing widening in the very immediate term, noting that the recent “swap spread cheapening seems to suggest that the richening during December has made room for the initial long-end flows from Dutch pension funds”.
US 10YR FUTURE TECHS: (H6) Bear Threat Remains Present
Jan-05 11:16
- RES 4: 113-07 High Dec 3
- RES 3: 113-00+ 61.8% retracement of the Nov 25 - Dec 10 bear leg
- RES 2: 112-25+ high Dec 30 / 31
- RES 1: 112-20 50 -day EMA
- PRICE: 112-12 @ 11:05 GMT Jan 5
- SUP 1: 112-01+/111-29 Low Dec 23 / 10 and the bear trigger
- SUP 2: 111-19 1.236 proj of the Oct 17 - Nov 5 - 25 price swing
- SUP 3: 111-11 1.382 proj of the Oct 17 - Nov 5 - 25 price swing
- SUP 4: 111-00 Round number support
Treasuries continue to trade above key support at 111-29, the Dec 10 low and a bear trigger. The trend theme remains bearish and a break of 111-29 would confirm a resumption of the bear cycle. This would open 111-19 initially, a Fibonacci projection. Key short-term resistance has been defined at 112-31, the Dec 18 high, where a break would undermine a bear theme and signal scope for a stronger recovery instead.
EUR: EURJPY Breaching 20-day EMA Support, EURAUD at Fresh Cycle Lows
Jan-05 11:14
- Elsewhere, EURJPY has had a notable 0.48% move lower and is testing below its 20-day EMA, an average that supported the cross well across Q4 last year. A break back below 183.00 would strengthen the chances of a corrective cycle developing, signalling scope for a pullback towards 181.16, the 50-day.
- Broad renewed pressure on the Euro has further weighed on EURAUD this morning, with the cross printing a fresh cycle low below 1.7480 today, the lowest level since June. This narrows the gap to 1.7462 support, of which a break would bolster bearish conditions. A key downside target is 1.7248, the May 2025 low.
- SocGen have pointed out that futures traders went into the Christmas break with the biggest net long euro exposure since August 2023, and the risk of a significant correction is clear. They highlight that EURAUD has downside from here.
