EUR/SEK recedes from YTD highs, back near 10.5600

• SEK regains some shine after Tuesday’s 2019 lows vs. EUR.
• Inflation expectations ticked lower in February.
• GDP forecasts revised lower by the Swedish Debt Office.

The beleaguered Swedish Krona is finding some oxygen on Wednesday after EUR/SEK recorded fresh 2019 highs at 10.6219 yesterday.

EUR/SEK stays weak, uncertainty prevails

SEK depreciated to fresh yearly lows on Tuesday, lifting the cross to levels last seen in late August 2018 beyond the 10.62 handle, all in response to poor prints from inflation figures during January.

Speaking about inflation, today’s Kantar Sifo Prospera survey notes money market players’ inflation expectations receded a tad for the 5-year term horizon. In addition, GDP is now seen expanding 1.7% in a year’s time (from 1.9%) vs. unchanged figures for the scenario within 2 years (1.8%) and 5 years (2.0%).

Furthermore, the Swedish Debt Office released its forecasts for GDP. The agency revised lower its prospects and is now seeing the economy expanding 1.6% this year (from 1.9%) and 1.6% in 2020 (from 1.8%).

What to look for around SEK

Fundamentals in the Scandinavian economy remain healthy, although the projected global (and particularly the EMU) slowdown is expected to have its say on the performance of the domestic economy in the next months. If we add the recent forecasts for lower GDP, the outlook on the Krona appears cloudy, to say the least. In addition, SEK is also facing extra headwinds as market participants consider it a funding currency when comes to carry trade. Following the ‘dovish’ hike in December and subsequent messages from the central bank in the same direction, one can assume that a fairly amount of negative news should be already priced in around the Krona. However, concerns over the global slowdown and the ‘wait-and-see’ mode from the ECB should prompt some caution in the Riksbank, pouring cold water over speculations of further tightening this year and thus fuelling further bouts of SEK weakness.

EUR/SEK levels to consider

As of writing the cross is up 0.08% at 10.5620 and a break above 10.6217 (2019 high Feb.19) would open the door to 10.6929 (high May 4 2018) and finally 10.7290 (2018 high Aug.29). On the flip side, the next support aligns at 10.4926 (10-day SMA) seconded by 10.4192 (21-day SMA) and then 10.4036 (low Feb.13).