SEK unlikely to weaken much even if Riksbank extends QE at policy meet

The Riksbank is widely expected to keep benchmark interest rates unchanged and expand its asset purchase programme for six months for a total SEK 30bn at its monetary policy meeting on Wednesday, 21st December.

Despite the 'core labour market' demonstrating among the lowest unemployment rates since the early 1990s, wage inflation is still very weak. Inflation continues to be a challenge for the central bank. Despite unprecedented stimulus measures, the Riksbank was unable to spark inflation toward a 2 percent target.

EUR/SEK hit 15-year peaks at 10.0804 in November month and has since eased slightly to currently trade at 9.7205 levels. Technical studies have turned bearish for the pair. Downside finds support at 100-day MA by 9.6626. Break below could accentuate weakness. We then see scope for test of 61.8% Fibo retracement of 9.1151 to 10.0804 rally at 9.4838 level.

“Our economists highlight the risk of a longer extension in response to the ECB having committed to purchases for all of 2017. We think risk-reward continues to favour positioning for medium-term SEK gains and target EUR/SEK at 9.40 by the end of 2017.” said Sam Lynton-Brown, FX Strategist at BNP Paribas.

FxWirePro's Hourly EUR Spot Index was at -37.9768 (Neutral) at 1055 GMT. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex.