SWEDEN: Government Projects Recovery In 2026; Economy In Balance In 2027

Euro Stoxx 50 futures trade lower, with the hawkish reports surrounding U.S.-EU trade relations and Stellantis earnings providing a couple of sources of pressure.

• The contract trades at the lowest levels seen in 3 sessions, initial support at Wednesday’s low (5,303.00).

• In FX, EURUSD is in consolidation mode just ahead of its recent lows. The move down since Jul 1 appears corrective. The 20-day EMA has recently been cleared and scope is seen for a test of the 50-day EMA, at 1.1518. A clear break of the average is required to signal a stronger reversal. For now, trend indicators continue to highlight a dominant uptrend. A resumption of gains would open 1.1829, the Jul 1 high and bull trigger.
• A short-term bear cycle in GBPUSD remains in place and the pair continues to trade closer to its recent lows. Last week’s extension lower resulted in a breach of trendline support currently at 1.3470 - drawn from the Jan 13 low. The breach strengthens a bearish threat, exposing 1.3335 next, the May 20 low. On the upside, initial firm resistance to watch is 1.3519, the 20-day EMA. A clear break of this average is required to highlight a potential base.
• A short-term bull cycle in USDJPY remains in place and last week’s gains mark an extension of the current uptrend. The latest rally has resulted in a breach of resistance at 148.03, the Jun 23 high, and a move through key resistance at 148.65, the May 12 high. The break strengthens the bullish theme and sights are on 149.38, 50.0% of the Jan 10 - Apr 22 bear leg. On the downside, key short-term support is seen at 145.78, the 50-day EMA.

German swap spreads have widened today, generally extending the recovery from July lows that also coincides with yields moving away from their July highs.

• Desks also stress that prevailing repo levels helped put a base into Schatz spreads earlier this month.
• Long end leads today’s spread widening as the outright yield curve bull flattens.
• Still, spreads remain rangebound multi-week.
• On the broader EUR curve, Goldman Sachs noted the following late on Friday: “although a shortening in the maturity of hedging needs resulting from the Dutch pension reform is likely to contribute to this move over time, we see little evidence that the steepening in the EUR long end reflects this in the near-term. All major 10s30s global swap curves have steepened, which points to a broader realignment of duration demand following the general rise in the distribution of inflationary pressure and ongoing large fiscal deficits. At current levels, our curve model suggests 10s30s trade broadly fair against macro fundamentals”.