EQUITY TECHS: E-MINI S&P: (Z5) Bulls Remain In The Driver’s Seat

SPX: 6,408.4 (-0.0%); DJIA: 44,953 (+0.1%/+31pts); NDX: 23,338.8 (-0.2%).

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EXECUTIVE SUMMARY: 

• The Riksbank held rates at 2.00% in August, as unanimously expected. The Board continues to see “some probability of a further interest rate cut this year”, with the June outlook broadly affirmed despite the summer uptick in inflationary pressures. This was in line with MNI’s expectations ahead of the decision.
• The August decision was balanced overall, keeping a September cut on the table without signalling an urgent need to ease policy at that meeting.
• With markets still pricing the September decision as a coin toss between a hold and a cut, there will be plenty of focus on the Q2 GDP and August inflation reports in the coming weeks.
• The policy statement, Monetary Policy Update and press conference played down the recent increase in inflation, referencing the role of temporary, volatile factors like foreign travel and car rental. The outlook for economic activity is still considered to be “weak”, which is the main reason for retaining a dovish bias in the policy statement.
• We haven’t seen any analyst view changes following the decision. The median analyst still tilts in favour of one more rate cut in September.  

• Alongside the dovish RBNZ pricing on Wednesday, and the associated Kiwi weakness, EURNZD has risen back above the psychological 2.00 mark to trade at its highest level since 2010. A previous attempt above this level in April provided an abrupt top for the cross, before a swift 6% reversal ensued.
• Bullish trend conditions have perhaps helped exacerbate the topside momentum today, with both 20-day and 50-day exponential moving averages providing very solid support since late June.
• Furthermore, German 30-year yields reaching the highest level since 2011 on Tuesday will likely be helping the bullish EUR narrative that has been in place since March, reflective of the expectations for a fiscally-driven German expansion ahead.
• Given the longer-term significance of current chart levels, EURNZD may be at an important inflection point. Should spot close above 2.00, momentum demand could signal scope for a much stronger rally, potentially targeting 2.1249, the 61.8% retracement of the 2009-2015 range.
• However, should the level hold again on a closing basis, pullbacks toward initial support at 1.9630 (20-day EMA) might be expected. Firm support now resides at 1.9500.