Swedish Krona on fragile mode as Riksbank stares more on bonds than unchanged rate

The central bank remained firm on to expanding its government bond-buying programme for a second time with an eye towards keeping a lid on SEK appreciation by trying to stop Swedish yield differentials from widening against Bunds and US Treasuries. Sweden's Riksbank abstained from trimming the key rate today for the first time in three months after it showed concerns about inflation forecasts for 2015 and 2016. The path for the repo rate was lowered by a cumulative 92 bps over the forecast.

Although the SEK is among the cheapest currencies at present in the G10, further appreciation will require more help from a dovish Fed, which is not our base case scenario. At the moment, we have bearish mood on EUR/SEK pair.

Technical watch:

Technicals view on this pair is showing all signs downside momentum as it dropped through the 200 DMA at 9.2979, RSI is in declining convergence with price curve. Stochastic shows redline crossover at around 70 levels in conjunction with a shooting star candle pattern formed on upward curve which is a strong bearish reversal signal.

Contemplating both the technical confirmation and the above unchanged policy explanation, we recommend shorts on futures of this pair with a tight stop loss at 9.3226.