FX Update: USD rises on strong labor market data. Cue NFPs.

Swedish krona hitting the skids as the country pays the price for its housing bubble and as rising prices for power and cost-of-living have bankruptcies rising to their highest level in 10 years in the second half of last year. Retail, restaurants and hotels are especially hard hit. After Sweden built one of the most extreme housing bubbles of the small open economy that all built bubbles post-GFC, its currency is paying the price even as the Riksbank normalizes policy. Traditionally, the Swedish krona is one of the most sensitive currencies to global- and Euro area risk sentiment. But its recent weakness is on a different scale and begs consideration. One minor angle is that the “hawkish” deciding vote on the Riksbank, Governor Ingves, has been replaced by the somewhat unknown quantity of Erik Thedeen, the new governor and another new member, Aino Bunge. But Swedish rates have tracked European rates quite closely over the last couple of weeks. It is more likely that the market is concerned of a risk of a crushing recession and possible housing price debacle, one that would inevitably bring some sort of bailout if the risks turn systemic. We should have fireworks ahead for the Swedish krona this year with much at stake for government policy as much as Riksbank policy. Mark your calendars for the next Riksbank meeting on February 9.

China policy signals are coming fast and furious as the country is hunkered down amidst a massive Covid wave washing over the economy. The latest hope is that China is set to retire the “three red lines” that were announced all the way back in August of 2020 and were the first major signal of a crackdown on leverage within the property sector. The CNH has rallied further and even managed new highs versus a very strong USD overnight, although that move has pulled back slightly in the European morning. Is the excitement getting a bit overwrought here?

Table: FX Board of G10 and CNH trend evolution and strength.
The Swedish krona is trying to play a bit of catchup with the Norwegian krone to the downside here as the latter has been winded by the steep drop in crude oil prices here at the start of the year. Elsewhere, the yen has lost some altitude after the strong yield surge yesterday. And CNH strength has turned rather profound, with AUD catching hold of the yuan’s coattails.

Table: FX Board Trend Scoreboard for individual pairs.
Let’s have a look at where the USD pairs stand after the US data today, but the greenback is making a bid for a broader turn higher ahead of the data today. Elsewhere, note the wild extensions higher in EURSEK and EURNOK as the latter has traded to new 2-year highs this week and EURSEK trades above the highest daily close during the wild days of the pandemic outbreak in early 2020.

Upcoming Economic Calendar Highlights

• 1330 – Canada Dec. Net Change in Employment / Unemployment Rate
• 1330 – US Dec. Change in Nonfarm Payrolls
• 1330 – US Dec. Average Hourly Earnings
• 1330 – US Dec. Unemployment Rate
• 1500 – US Dec. ISM Services
• 1500 – Canada Dec. Ivey PMI
• 1615 – ECB Chief Economist Lane to speak
• 1615 – US Fed’s Cook (Voter) to speak
• 1715 – US Fed’s Barkin (Non-voter) to speak
• 1800 – US Fed’s George (Non-voter) to speak
• 2030 – US Fed’s Bostic (Non-voter) to speak