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EUR/SEK Technical Analysis: Bearish Outlook for Q1 2019

EUR/SEK Technical Analysis: Bearish Outlook for Q1 2019

2018-12-28 05:35:00
Dimitri Zabelin, Analyst
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EUR/SEK TECHNICAL STRATEGY: PENDING SHORT

  • EUR/SEK, potentially rise in short term, may fall heading into 2019
  • Potential fiscal expansion in Sweden and peril in the EU to fuel SEK
  • Entering short at 10.2583 and waiting for daily close below 10.2116

See our free guide to learn how to use economic news in your trading strategy!

TECHNICAL SETUP

EUR/SEK has been trading above the August-resistance since early December, and the short-term support range for the pair appear to be between 10.2858 and 10.2702. On December 20, the Riksbank raised rates for the first time in seven years from -0.50% to -0.25%. EUR/SEK dropped almost 1%, and closed that day - and the following - at the 10.2702 support.

EUR/SEK – Daily Chart

EUR/SEK - Daily Chart

Given the many support levels that lie within close proximity to each other, an opportunity to go short might present itself at 10.2583, with the next possible support at 10.2116. The distance between these two points is greater than the distance between the initial short position and the next possible resistance at 10.2702. What this is means is prices positioning relative to near-term resistance versus support appears to offer a compelling risk/reward short position.

Potential Risk/Reward Trade Setup

EUR/SEK - Daily Chart

FUNDAMENTAL SETUP

The Riksbank’s policy statement indicated that the next possible rate hike will be in the latter half of 2019 – similar to the ECB – and will plan to implement two rate hikes every subsequent year. The central bank stated that “...the need for a highly expansionary monetary policy has decreased slightly”, and have chosen to take a gradualist approach amid rising uncertainty in international affairs e.g. trade wars and political fragmentation.

Riksbank officials stated that economic activity remains strong and is a conducive environment for maintaining inflation close to the central bank's target. However, they noted that they will be keep a close eye on international developments and Sweden's messy domestic politics that may affect the Krona.

Sweden’s caretaker government also recently passed a center-right budget that will likely entail a fiscal expansion which may provide a boost to inflation and economic activity. This may give impetus for the Riksbank to continue along its policy path and possibly decrease the likelihood of a more dovish revision.

The EU, on the other hand, is projected to experience a slowdown in economic activity while facing political turmoil from Brexit, Italy teetering on a recession and the upcoming EU parliamentary elections. The ECB, in this environment, is not likely to raise rates and investors are already feeling bearish on the Euro’s outlook for 2019.

Therefore, going short EUR/SEK might be an attractive proposition, given the widening divergence in projected economic performance and stability. However, to be fair, Sweden is facing a parliamentary crisis at the moment which may be a foreshadowing of a broader European problem in May.

EUR/SEK TRADING RESOURCES

--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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