SCANDIS: EURNOK Pierces Key Resistance; Riks and Norges Decisions Next Week
EURNOK has pierced key resistance at the Nov 25 high of 11.8612, currently up 0.35% on the session. Beyond this level, obvious upside targets appear scant until the 12.00 figure. We haven’t seen an obvious regional driver of the krone weakness, noting that EURSEK is also up 0.4% today.
- Next week’s focus will be Thursday’s Riksbank and Norges Bank decisions. Policy rates are expected to be held at 1.75% in Sweden and 4.00% in Norway, with focus on the updated MPR and rate path projections.
- We expect a downward revision to Norges Bank’s rate path relative to September, which may tilt the balance of risks in favour of 2x25bp cuts next year, versus the single cut embedded in the September rate path. That would see the December rate path align more closely with market pricing. That said, the implied probability of 2x25bp cuts in 2026 is likely to be well below 100%, with Norges Bank retaining a preference to keep policy restrictive amid sticky services inflation and only gradually slowing mainland GDP growth.
- We expect an upward revision to the Riksbank’s December MPR rate path, but note that market pricing has already moved to almost fully price a hike by the end of next year. This suggests the bar is high for the guidance and rate path to spur further hawkish repricing in SEK rates – potentially limiting scope for a material FX impact. Despite recent improvements in domestic activity data, we anticipate the Riksbank will continue to signal that the policy rate will be held at current levels for "some time".
Figure 1: EURNOK (Source Bloomberg Finance L.P)
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SEK: Important EURSEK Support Zone Coming Back Into View
EURSEK has traded in a sideways fashion since the start of September, but building downward momentum is helping narrow the gap to an important support zone around 10.9000. A clear break of this level would expose 10.8000, which aligns closely with the April 4 low (10.7941).
- The case for continued SEK outperformance is largely tied to the growth differential channel. Recent domestic data have supported these arguments, with Swedish activity being supported by stimulative monetary policy, incoming fiscal stimulus and lower trade policy uncertainty.
- Current Bloomberg consensus sees EURSEK at ~10.90 by year-end, before falling to 10.70 by the end of next year.
- EURSEK is down 0.3% intraday, seemingly a function of the 1% rally in European equity futures.
- Swedish final October inflation is due tomorrow. The flash reading was 2.8% Y/Y (2.76% unrounded), two tenths above Riksbank and consensus projections. However, the final reading details are unlikely to be a gamechanger for markets, with policymaker guidance clear that the policy rate is likely to remain at 1.75% for "some time to come".
FED FUNDS FUTURES: FFF6/G6 Spread Lifted
FFF6/G6 paper paid -9.5 on 22.5K, ~24K trades there all day. Level is taken bid over with small trading at -9.0 on the follow.
US TSY OPTIONS: Large Upside Structures in Options
- Some suggestion that Real Money is said to have been HUGE buyers of Upside via Option with around 300k going through this past Week.
- These are looking for a more Dovish path which could be supported given the Latest poor round of US Employment Data.
- The TYF (expiry 26th Dec) 113.50 and 114 calls have mostly been targeted and have been bought in 200k and 100k respectively, these will also expire when the UK are closed.
