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Monday, 19 Dec 2011

Swedish Interest Rate Decision

The Riksbank, Sweden's central bank, will meet on Tuesday for its latest interest rate decision and could surprise investors. Consensus expectations are for only a 25 bp rate cut. This is despite a larger than forecasted reduction in the Norwegian interest rate by the Norges bank who cut rates by 50 bp last week.

In light of the spillover effects of the European debt crisis and lower inflationary pressures the Riksbank is expected to provide a bit of monetary policy easing with a 25 bp rate cut. There is the possibility the Riksbank could surprise investors with 50 bp of easing as CPI has steadily declined to 2.8% y/y in November from a high of 3.4% in August. Swedish growth forecasts are also likely to be trimmed as well given the expected slowdown in European.

Despite the possibility of additional easing of Swedish monetary policy the SEK has strengthened versus the EUR with the EUR/SEK falling to support at 8.9800. A break here would then find support at the September low of 8.8600, followed by February's double bottom reversal at 0.8700. Turning to the USD/SEK the pair has surprisingly been unable to sustain a bid above the September high near 7.0000. The 50% Fibonacci retracement of the 2010 high to the 2011 low rests at 7.0500. Support is found back at the December low of 6.6890.

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