Basel Committee on Banking Supervision Could Undermine SEK and DKK

OVERVIEW – An article in Bloomberg today talks about how both the Danish and Swedish regulators are fighting a proposal from the Basel Committee on Banking Supervision that could seriously jeopardize the health and stability of the current mortgage bond markets in the respective nordic economies. Both Denmark and Sweden have sizeable covered bond markets, with Denmark’s surprisingly the world’s third largest covered bond market at $450B. This is a development that should be watched closely going forward as it could have a negative impact on the DKK and SEK. We have already seen some cross related selling in the DKK and SEK against the NOK in Wednesday trade which could be attributed to this development. Also seen benefiting the NOK has been a mild resurgence in risk buying.

Eur/Sek Remains locked in an intense downtrend with the latest bounce merely classed as corrective at this point. For now it appears as though the market is looking to carve out a fresh lower top below 9.55 ahead of the next downside extension below the yearly lows at 9.33. A break and close back above 9.55 would be requires at a minimum to relieve downside pressures.

Eur/Nok Overall price action remains quite choppy with the market most recently stalling out ahead of the multi-day range lows by 7.80 and bouncing back into the mid-range. From here, look for additional upside to test the range highs over the coming days which come in by 8.20. Look for a break back above the 8 handle to confirm and accelerate. Below 7.80 delays.

Usd/SekThe market has been locked in some sideways trade over the past several days since rallying sharply after stalling out ahead of the 7 handle, and from here it is difficult to determine whether we are in the process of carving out a higher low above 7.04, or a lower top by 7.51 ahead of the next drop. As such, look for a close back above 7.51 or below 7.29 for clearer directional bias.

USD/NOK DAILY

Bloomberg

Usd/Nok The cross looks to have carved out a meaningful base ahead of 5.90, following the latest surge back above 6.20. From here it is difficult to determine whether or not the rally will continue, with the downtrend from June still intact and the market potentially looking to carve a fresh lower top below 6.40. As such, we would need to see a break back above 6.37 to encourage an official shift in the structure and open some fresh upside.

Gbp/NokThe market has been well capped by some solid range resistance just over 9.80 to result in the latest minor pullback. However, the overall structure remains quite bullish with the cross trending higher over the past few months, and we would expect to see any setbacks well supported ahead of 9.40. A break and close back above 9.82 would also confirm bullish bias and accelerate gains.

Nok/JpyDespite the latest break to fresh 2010 lows below multi-week range support by 13.50, the overall price action still remains quite consolidative in the 13-14.50 area and our recommendation is to continue to play the range high lows.

Written by Joel Kruger, Technical Currency Strategist for DailyFX.com

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