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Gold Prices, SEK, NOK May Rise on ECB, FOMC Minutes

November 19
11:06 2019

Swedish Krona, Norwegian Krone, US Dollar, Gold Prices, ECB Minutes, Trade War, FOMC Minutes – TALKING POINTS

  • Gold prices may rise if the ECB and FOMC meeting minutes incite rate-cut expectations
  • Swedish Krona, Norwegian Krone may also rise if dovish bets boost appeal of riskier FX
  • NOK, SEK though may retreat on the OECD publication, trade war risks, Sweden report

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Gold prices, along with the Swedish Krona and Norwegian Krone may rise if the publication of the ECB and FOMC meeting minutes inflame dovish expectations. The yellow metal may rise if the prospect of lower interest rates ignites its appeal as a non-interest-bearing asset. NOK and SEK may get a boost if the notion of future liquidity provisions amplifies risk appetite and makes investors more willing to hunt for greater returns.

Chart showing Implied Volatilies

See my weekly gold price outlook!

US-China Trade War Outlook

However, the cycle-sensitive Krona and Krone may pare some of their gains if fundamental factors cause traders to get jittery. One of these include an escalation in US-China trade tensions. Beijing and Washington have been attempting to secure a “phase 1” deal in their multi-sequential trade agreement. Optimism over an accord has helped buoy sentiment.

However, recent developments have made investors anxious, and if talks break down, risk appetite may get soured and drag sentiment-linked assets like SEK and NOK down with it. Despite “constructive talks” last week, reports recently came in indicating China felt irked after US President Donald Trump said the rollback on tariffs was not guaranteed. Officials from both sides said they will remain in “close contact”.

FOMC Minutes

The biggest event risk for this week – barring any sudden trade war or Brexit-related developments – will be the release of the FOMC meeting minutes. If the text is interpreted as carrying dovish undertones, gold prices, SEK and NOK may rise at the expense of the US Dollar. The downside move in the Greenback may also be amplified if US-China trade war threats spook markets and pressure policymakers to tilt more dovish.

Fed Chairman Jerome Powell recently stated that the Sino-US economic conflict has contributed to the industrial recession major powerhouse economies are enduring. There are growing concerns that weakness in the manufacturing sector may eventually spill over into services and start sapping growth from economies that have managed to stay relatively resilient.

Chart showing Mnaufacturing PMIs

ECB Minutes

Euro traders and those exposed to European-based assets – like NOK and SEK – will be closely watching the publication of the ECB minutes from their meeting in October. Much like with the FOMC text, if the Governing Council Members are expressing greater concern about the Eurozone’s growth trajectory, traders may put a discount on the Euro in anticipation that chronic weaker data will tilt the ECB to be more dovish.

On Monday, ECB member Boštjan Vasle said there is “still room” to easy policy, with Philip R. Lane adding that he doesn’t think the ECB is at the limit yet and believes negative rates aren’t super loose policy. With this in mind, if traders pick up on subtitles embedded in the minutes that allude to future easing, it could push the Euro lower vs its major counterparts.

European Growth Trajectory

However, Nordic FX may also fall if the ECB minutes send a chilling wind to the Scandinavian countries which rely on strong European demand to fuel their export-driven economies. A NOK and SEK selloff may also be amplified by the publication of regional data that is set to be released throughout the week. Some of these include PMIs and consumer confidence.

OECD Outlook May Pressure NOK and SEK

Markets will also be closely watching the publication of the OECD’s economic outlook which may reinforce global slowdown fears and push haven-linked assets like the Japanese Yen higher at the expense of SEK and NOK. The IMF, World Bank and numerous other institutions have warned that the US-China trade war has severely weakened international growth and contributed to global disinflation.

Sweden Financial Stability Report

A lesser-known report to also watch this week will be the Riksbank’s publication of the Swedish Financial Stability Report. Policymakers have grown increasingly worried about household indebtedness as the average debt-to-income ratio is now over 330 percent with some as high as 600 percent. Housing prices continue to hover above bubble territory with concerns that a global slowdown could trigger a systemic financial shock.

Chart showing housing bubble

Get up-to-date Nordic market coverage by following me on Twitter @ZabelinDimitri.

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— Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter

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