US Dollar, FOMC Minutes, Iran Election, USD/SEK Analysis, USD/NOK Outlook – TALKING POINTS
- FOMC minutes may push US Dollar higher if accompanying text cools 2020 rate cut bets
- USD could also rise on risk aversion from impact of coronavirus and the Iranian election
- Swedish Krona could retrace gains if CPI and unemployment statistics miss expectations
US DOLLAR OUTLOOK AHEAD OF FOMC MINUTES
The US Dollar may appreciate against the Swedish Krona and Norwegian Krone if the FOMC minutes reveal that officials are comparatively more hawkish than what markets had expected. After Chairman Jerome Powell’s congressional testimonies last week, markets gained some insight as to how the head of the central bank feels about the economy. This came on the back of other FOMC members speaking throughout the week.
Having said that, this does not suggest that there is no room for hawkish surprises. Political uncertainty ranging from a no-deal Brexit to the US-China trade war has been reduced, and as such, it has given the global economy a chance to recover. The IMF’s World Economic Outlook confirmed that a trend of global stabilization is taking place, though the coronavirus could derail the trajectory.
CORONAVIRUS MAY PRESSURE NOK, SEK VS USD and JPY
The potency of fear about the coronavirus impacting financial markets has shown to have varying degrees of influence that is in large are predicated on the nature of the news. More specifically, the severity of the updates. Last week, news about the new method of calculating the number of cases added several thousand more to those infected, causing S&P 500 futures to retreat with NOK and SEK while the anti-risk JPY and USD rose.
We may see a similar dynamic like this play out in the week ahead, whereby an update on the Wuhan virus may elicit a strong risk-off bias and push commodity-linked FX lower at the expense of anti-risk assets. In the coming weeks, what investors will be eager to see what the estimated numbers will be for China Q1 GDP since it may reveal how the virus has impacted the Asian giant’s growth.
SEK MAY FALL ON SWEDEN CPI, JOBS DATA
The Swedish Krona face selling pressure if Swedish CPI data for January underwhelms in addition to the publication of unemployment data. While the Riksbank has said it would first use non-negative interest rate measures to counter a downturn first, unexpectedly soft price growth and shaky jobs data could cause officials to reconsider. A higher unemployment rate could also expose a growing threat in the financial system.
As outlined in my US Dollar weekly forecast, the Greenback may rise against its major counterparts, particularly those that have a predisposed sensitivity to oscillations in global sentiment. While the petroleum-linked Norwegian Krone has sometimes benefited from politically-induced supply disruption fears, the recent escalation of tension between Iran and the US has led to a selloff in NOK against USD and JPY.
( 04:02 GMT )
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Geopolitical Risks Affecting Markets in the Week Ahead
The assassination of the Iranian General Qasem Soleimani is the most recent example. After reports confirmed the official was killed, crude oil prices rose on the expectation that a heightened conflict between the US and Iran would choke supply and push prices higher. In the upcoming election, conservative hardliners are expected to win a larger number of seats Parliament, potentially raising the prospect of conflict down the line.
USD/SEK PRICE CHART
USD/SEK is trading on the lower cusp of the trend-defining resistance area between 9.7228 and 9.6878 (gold-dotted lines). If the pair fails to clear resistance with follow-through, the next area USD/SEK will likely test will be the January uptrend. If broken, it may precede a bearish correction. As the range between resistance and the slope of appreciation narrows, traders get closer to seeing if a bearish or bullish move is up ahead.
USD/SEK – Daily Chart
USD/SEK chart created using TradingView
As outlined in last week’s forecast, USD/NOK broke below the January uptrend, but its decline has not been very aggressive – at least so far. This may therefore speak to an underlying bullish bias propelling the pair higher as it treads below resistance at 9.3057. The upcoming FOMC meeting may be the catalyst needed to catapult the pair beyond the ceiling rather than retreating to support at 9.2007.
USD/NOK – Daily Chart
USD/NOK chart created using TradingView
US DOLLAR TRADING RESOURCES
— Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter