RIKSBANK: MNI Riksbank Preview - May 2024: Threshold For Cut Appears Met
EXECUTIVE SUMMARY
- The Riksbank is expected to deliver its first cut of the cycle at the May meeting. In the March press conference, Governor Thedéen noted that if all data (i.e. not just inflation) were in line with the March MPR projections, a cut in May would be the most likely scenario. The macroeconomic data since the March meeting appears to have met this threshold.
- If a rate cut is enacted, we expect it to be delivered with a hawkish tilt in order to protect the SEK from a renewed bout of weakness. If a rate cut is enacted, we expect it to be delivered with a hawkish tilt in order to protect the SEK from a renewed bout of weakness.
- There remains a material risk that the Riksbank elects to remain on hold in May, a move which would purely be driven by views on the krona. If this scenario were to play out, we would expect a very strong signal (potentially even a pledge) that rates will instead be cut in June.
- Of the 18 sell-side previews that MNI has seen, 13 expect the Riksbank to deliver its first rate cut in May, with the remaining 5 opting for June
For our full preview, including a summary of sell-side views, see the PDF here:
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USDCAD TECHS: Has Pierced Key Short-Term Resistance
- RES 4: 1.3855 High Nov 10 2023
- RES 3: 1.3765 High Nov 22 2023
- RES 2: 1.3729 76.4% retracement of the Nov 1 - Dec 27 bear leg
- RES 1: 1.3661 High Nov 27 2023
- PRICE: 1.3581 @ 17:15 GMT Apr 5
- SUP 1: 1.3478/20 Low Apr 4 / Low Mar 8 and the bear trigger
- SUP 2: 1.3359 Low Jan 31 and key S/T support
- SUP 3: 1.3343 Low Jan 12
- SUP 4: 1.3288 Low Jan 5
A bull cycle in USDCAD remains in play and Friday’s initial gains reinforce this condition. The pair has pierced an important resistance and congestion at 1.3614, the Mar 19, 22, 25 and 29 high. A clear break of this hurdle would confirm a resumption of the uptrend that started late December last year. 1.3623, 61.8% of the Nov 1 - Dec 27 bear leg, has also been tested, a break would open 1.3661, the Nov 27 ‘23 high. 1.3478 is first support, the Apr 4 low.
AUDUSD TECHS: Remains Above The 50-Day EMA
- RES 4: 0.6729 High Jan 12
- RES 3: 0.6708 61.8% retracement of the Dec 28 - Feb 13 bear cycle
- RES 2: 0.6668 High Mar 8 and the bull trigger
- RES 1: 0.6635 High Mar 21
- PRICE: 0.6585 @ 17:14 GMT Apr 05
- SUP 1: 0.6503 Low Apr 3
- SUP 2: 0.6478 Low Mar 5
- SUP 3: 0.6443 Low Feb 13 and the bear trigger
- SUP 4: 0.6412 76.4% Fibonacci retracement for Oct - Dec upleg
The rally this week in AUDUSD has resulted in a break of resistance around the 50-day EMA. This potentially confirms the recent bout of weakness between Mar 8 - Apr 1 as corrective in nature. A continuation higher would open 0.6635, the Mar 21 high. For bears, a reversal lower and a break of support at 0.6478, the Mar 5 low, would instead reinstate a bearish theme. This would open the bear trigger at 0.6443, the Feb 13 low.
US TSYS: Back Near Post Jobs Low, Technical Support Holds
- Treasury futures gapped lower after higher than expected March employment data showed job surge of 303k vs. 214k est, 275k prior down revised to 270k.
- Balance of data: Private Payrolls (232k vs 170k est); Unemployment Rate (3.8% vs. 3.8% est vs. 3.9% prior), Average Hourly Earnings MoM (0.3% vs. 0.3% est), YoY (4.1% vs. 4.1% est), Labor Force Participation Rate (62.7% vs. 62.6% est).
- Jun'24 10Y futures gapped to a post-data low of 109-15 (-21; yield 4.3996% high) - near initial technical support of 109-09.5 (Apr 03 low). Futures dew short cover/position squaring support that saw TYM4 climb back to 109-30 in late morning trade before settling back near session lows after the Feb Consumer Credit came out lower than expected at $14.1B vs. $15B, prior down-revised to $17.684B from $19.495B.
- The strong jobs data sapped rate cut expectations in the near term: May 2024 at -5.7bp vs -9.8% pre-data w/ cumulative -1.4bp at 5.312%; June 2024 at -52.4% vs -59.6% earlier w/ cumulative rate cut -14.5bp at 5.181%. July'24 cumulative at -24.9bp vs -28.9bp earlier, Sep'24 cumulative -41.3bp vs. -45.1bp earlier.
- Slow start to next week, focus on CPI and March FOMC minutes on Wednesday, PPI on Thursday.
