In terms of the Swedish Krona, it’s been one of the best-performing currencies in the last 6 months, but its bull run might be about to end. Enclosed are two potential trend reversal trades USD/SEK and EUR/SEK.
This week the Riksbank kept interest rates at zero and see no change in them until late 2023 which was widely expected by the market. The bank however was more aggressive in terms of increasing its QE program. The increased buying for Q1 2021 was not expected by the market and neither was the dovish message from the Riksbank.
Sweden is a small economy but is important as a “global sentiment” due to it being an export-oriented country and sensitive to changes in the global economy. The market is pricing in a global V-shaped recovery early next year which in our view will not happen.
The SEK has been one of the best-performing currencies in the last few months, but we now have a bearish outlook from the Riksbank, as well as
Corona cases in Sweden, moving sharply higher in recent weeks and the acceleration in infections is one of the worst in Europe. Sweden was seen as role model for many only a few months ago, but the strategy of herd immunity has failed. In terms of dealing with the spread of the virus – there is also a problem in terms of a clear-cut strategy “It’s a mess now, it’s a real mess. It is a mess because it’s unclear who is really calling the shots. It’s clear there’s a division between the government and the public health agency,” (Professor Nicholas Aylott)
With speculators heavily long the SEK we are looking for the bullish extreme to end and see it potentially going lower on both the USD and EUR.
USD/SEK DAILY CHART: We have seen the USD fall hard but we have now made a double bottom and are trading above the level today in low volatility – we think the selling could now be exhausted and if we can break out above resistance and Tuesdays high we should see a short covering rally up to levels indicated as the large number of speculators who are short exit on stop.
EUR/SEK DAILY CHART: We have seen 3 X Candle tails touch the key weekly support level of 10.10 which has not been tested since May 2109. We think the selling is exhausted and view the SEK EUR as a buy through nearby double trend line resistance above the 10.20 level for a potential rally back to September highs.
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