OVERVIEW – Markets set to get back into the swing of things on Tuesday following Monday’s lightened holiday trade. Currencies have been well bid on Tuesday thus far, but we are somewhat skeptical of the moves as both the NOK and SEK, which usually outperform in these conditions, sit somewhere lower down and in the middle of the pack. This could suggest that the resurgence in currency demand is not as real as some might want to believe, and we would recommend that traders proceed with caution. While our shorter-term outlook for the Nordics is bullish, our medium-term and longer-term view is to continue to look for opportunities to fade the regionals into strength against both the USD and Euro. The recent weakness in the Euro, in particular against these currencies, is overdone, and we believe that any fears over the debt crisis in Europe will soon be alleviated as the EU comes up with a viable recue plan for Greece. Looking ahead, the calendar is all Sweden, with industry capacity and total number of employees due at 8:30GMT.
Eur/Sek had come back under pressure over the past several days with the market trading down to a 12+ month low by 9.85. However, despite the weakness on the cross, we are not convinced of these moves and continue to see value at current levels with the market more likely to bounce rather than to continue to drop. A break above 9.90 will confirm and accelerate gains back towards 10.10, while only a close below 9.80 gives reason for concern. It is worth noting that the daily RSI is well below 30.
Eur/Nok had come back under pressure over the past several days with the market trading down to a 12+ month low towards 8.00. However, despite the weakness on the cross, we are not convinced of these moves and continue to see value at current levels with the market more likely to bounce rather than to continue to drop. A break above 8.10 will confirm and accelerate gains back towards 8.25, while only a close below 8.00 gives reason for concern.
Usd/Sek our view is highly constructive at current levels and favors continued USD appreciation over the coming weeks. We contend the market is attempting to carve out a major base rather than in the process of some bearish consolidation. Any setbacks are expected to be well supported ahead of 7.15, with the latest break back above 7.35 confirming bias and likely to accelerate gains towards 7.50-75 over the medium-term.
Usd/Nok has just managed to clear the multi-week range highs by 5.90 and we believe this now opens some fresh medium-term upside over the coming weeks. However, with the market only just exceeding the range highs we would not rule out the possibility for additional corrective declines and would recommend buying a dip towards 5.75.
Gbp/Nok in the process of rolling back over after stalling by the multi-day range highs just over 9.50. Look for the latest pullback into the 9.15-20 area to now be well supported ahead of an eventual sustained break above 9.50 which should open some medium-term gains towards the 10 handle over the coming weeks. Only a close back below 9.20 gives reason for concern and dips should be bought.
Nok/Jpy has been well confined to a very choppy range trade over the past several weeks, largely defined between 15.00 and 16.50. Rallies have once again been well capped in the 16.50 area ahead of the latest retreat back into the range lows. From here, we recommend continuing to play the range.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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