OVERVIEW – The resurgence in risk appetite over the past several hours has had a strong and favorable impact on the regional currencies with both the NOK and SEK rallying to fresh yearly highs against the Euro. However, we continue to caution traders and view any strength in the Nordic region as short-lived. Cyclical studies suggest that both the NOK and SEK are overdone, while fundamentals warn of another dip in the global economy. In fact, China has apparently come out overnight instructing its reserve managers to shift assets into core debt guaranteed by the US government. Looking ahead, the key event risk for the day and week in the region is due up at 8:30GMT in the form of the Riksbank rate decision. While it is practically a certainty that the central bank will leave rates on hold at 0.25%, all eyes will be on any accompanying language or statements that provide hints at the future direction of monetary policy. Overall, the board is mostly hawkish, and should any concerns emerge from these hawkish members, we could see a massive liquidation of long SEK positioning.
Eur/Sek Threatening to break down below the bottom of a key multi-week range defined by critical psychological support at the 10 handle. However, despite the latest slide, we continue to maintain a core bullish bias on the cross and view the latest dip back towards 10.00 as a formidable opportunity to build on a very compelling long position. Ultimately, only a 2-day close below 10.00 would give reason for concern.
Eur/Nok had come back under pressure over the past several days with the market trading down to a 12+ month low by 8.10. 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 8.16 will confirm and accelerate gains back towards 8.25.
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 9.20 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.
[B]Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
If you wish to receive Joel’s reports in a more timely fashion, e-mail [email protected] and you will be added to the “distribution” list.
If you wish to discus this topic or any other feel free to visit our Forum page[/B]