Market Analysis

Taking Stock Ahead of Independence Day. Or Taking Stocky?

When taking FX positions traders will always rely on their own judgement but the factors they consider can vary. Sometimes even the calendar can be a factor that weighs. Today may be one of those moments given that the 4 July US Independence Day holiday falls this year on a Tuesday. A lot of US market participants may opt to take Monday off and make it a long long weekend. That may affect liquidity conditions early next week at a time when a lot of short term positioning has arguably been assumed, particularly in euro/dollar (EURUSD).

Some traders may wish to take risk off the table ahead of 4 July. Other traders might wish to express a view on Europe through Independence Day but on a cross basis, without direct US dollar exposure. Traders thinking along those lines might be interested in a note issued by France’s Credit Agricole CIB on Thursday on the prospects for euro/Swedish krona (EURSEK). The French firm feels “external factors such as the ECB’s dovish policy stance have so far been preventing the Riksbank [the Swedish Central Bank] from considering its own improved domestic conditions when setting monetary policy. This may change soon, when considering the ECB’s more stable outlook.” On that basis Credit Agricole sees “upside risk to the SEK from next week’s Riksbank monetary policy announcement” [due on Tuesday] noting that Riksbank Deputy Governor Per Jansson recently argued it would be risky for the Swedish central bank to end stimulus before the ECB.  Credit Agricole wonders if the change in tone in this week’s comments from ECB chief Mario Draghi in Sintra might give Swedish policymakers room to edge in the same direction and whether, “considering the better growth and inflation developments in Sweden than in the Eurozone” that might translate into a lower EURSEK.

Written by Neal Kimberley, External Currency Analyst.