New year, new SEK
With Christmas and a new year around the corner, we leave a year fraught with uncertainty and looming recession fears. The prevailing trend among developed nations has been gradual yet firm interest rate hikes aimed at quelling inflationary expectations. This has also been true for Sweden and the EU, but Sweden is set to see a change in management of its central bank. While Sweden most probably will follow the previously established line or become even more hawkish, the euro is locked into a catch-22.
Erik Thedéen will replace Stefan Ingves on the first of January, 2023 at the Swedish central bank, meaning he will be a part of the monetary policy meeting in February. Previously working at FI, the Swedish Financial Supervisory Authority, Thedéen has become associated with increasing amortization requirements on residential mortgage. Furthermore, the November 2022 data regarding inflation and unemployment for Sweden showed no signs of slowing down, with unemployment dropping to 6.4 % (7.5%) Year-on-Year (YoY) and inflation soaring to 11.5 %, the highest level since 1991. This adds fuel to the fire that is the market sentiment that hawkish interest rate hikes are bound to continue. Furthermore, possibly due to Sweden predominantly being an exporter, the SEK tends to correlate with market uncertainty. More precisely, it tends to depreciate as market conditions degrade. After the choppy back half of 2022, with China going back into lockdown only to subsequentially ease the restrictions, bullish sentiment points to a stabilization in 2023. Considering all the above, this points to a possible consolidation for SEK in the first half of 2023.
Euro (bas) vs Swedish Krona Spot (EUR/SEK), weekly five-year price chart
The EU, on the other side of the equation, faces many challenges inherent to the formation of the EU itself. While some countries might be able to see the light at the end of the tunnel, others are nearing their pain tolerance as far as the economy is concerned. Italy, one of a few highly indebted countries in the EU, has labelled the European Central Bank (ECB) “baffling” and “crazy” in response to the latest hike last Friday, the 16th of December. Being on the cusp of a recession, Italy and others might limit the ECB from taking one step too far with the interest rate. This entails, with Sweden being set to continue the pressure, that SEK might be bound for recovery against a EUR that is tied on a leash.
Euro (bas) vs Swedish Krona Spot (EUR/SEK), daily one-year price chart
Bull & Bear-Certificates
The full name for abbreviations used in the previous text:
EMA 9: 9-day exponential moving average
Fibonacci: There are several Fibonacci lines used in technical analysis. Fibonacci numbers are a sequence of numbers in which each successive number is the sum of the two previous numbers.
MA20: 20-day moving average
MA50: 50-day moving average
MA100: 100-day moving average
MA200: 200-day moving average
MACD: Moving average convergence divergence
Risks
This information is neither an investment advice nor an investment or investment strategy recommendation, but advertisement. The complete information on the trading products (securities) mentioned herein, in particular the structure and risks associated with an investment, are described in the base prospectus, together with any supplements, as well as the final terms. The base prospectus and final terms constitute the solely binding sales documents for the securities and are available under the product links. It is recommended that potential investors read these documents before making any investment decision. The documents and the key information document are published on the website of the issuer, Vontobel Financial Products GmbH, Bockenheimer Landstrasse 24, 60323 Frankfurt am Main, Germany, on prospectus.vontobel.com and are available from the issuer free of charge. The approval of the prospectus should not be understood as an endorsement of the securities. The securities are products that are not simple and may be difficult to understand. This information includes or relates to figures of past performance. Past performance is not a reliable indicator of future results.