OUTLOOK: Price Signal Summary - Resistance In Bunds Remains Exposed

• Monday saw a punchy reversal higher for EURCAD, rising around 0.75% on the session. The cross has been in focus in recent weeks, appreciating to the highest level since 2009 amid broader Euro optimism. The cross currently stands just 50 pips from those cycle highs at 1.6360, printed last Wednesday.
• We would highlight that short-term exponential moving average indicators have provided solid support across Friday and Monday, with the cross unable to close below the 20-day, which now intersects around 1.62. Subsequent price action underpins the bullish theme, with notable resistance scant until March 2009 highs around the 1.70 level.
• Despite mixed releases, the positive surprise for the German services flash PMI is helping the single currency to consolidate its bounce on Tuesday. In Canada, GDP data is due on Friday, expected to dip to 0.7% Y/y.
• The BOC maintained its easing bias in September, and the overall communications highlighted risks to growth and employment. BOC Governor Macklem is scheduled to speak on global trade and capital flows today, with text expected at 1415ET/1915BST. Q&A is also expected.
• Scotiabank recently emphasised their bullish EURCAD view, now looking to the 1.65/1.70 range as their next upside target.

Figure 1: EURCAD Monthly Chart - Source: Bloomberg Finance L.P. / MNI

EURUSD (3d Oct) 1.2075c, bought for 0.0007 in ~1k.

Scandi currencies outperform the G10 basket this morning, with EURSEK down 0.5% and EURNOK down 0.3%. For EURSEK, today’s price action reinforces the idea that the Sep 16 – Sep 19 rally was corrective in nature. The medium-term technical outlook remains bearish, supported by the set-up of the 20- and 50-day EMAs. Initial support is the Sep 15 low at 10.9036. 

• The 25bp Riksbank cut is being signalled as the last of the cycle, with rates likely to remain steady at 1.75% into 2027. 2-year SEK swap rates have fully unwound the ~4bp fall seen immediately after the rate decision, now up 2bps at 2.04%.
• We don’t think the decision should be interpreted as a “hawkish cut” though (certainly not when compared with Norges Bank last week). Markets were already coming into the decision pricing a 1.75% terminal policy rate, with today’s cut just bringing that move forward. It’s not surprising that the Riksbank views the outlook for GDP as somewhat better following the large fiscal stimulus recently announced by the Government.
• Instead, the passing of today’s (dovish) risk event may provide a cleaner backdrop for participants to re-engage bullish Scandi FX positions that are less reliant on near-term monetary policy considerations.
• These include favouring economies with increased fiscal space, as well as capitalising on the broader dollar downtrend that has been observed this year.
• From today’s September MPR: “The Riksbank still assesses that the krona is somewhat undervalued and it strengthens further in the forecast”.