NOK/SEK TECHNICAL STRATEGY: PENDING SHORT
- Looking to short NOK/SEK at 1.0238 – 2019 outlook for oil is a key factor
- Outlook for global growth, EU politics, oil (in particular) to weigh on NOK
- The Swedish Krona may outperform relative to the Norwegian Krone
TECHNICAL SETUP
NOK/SEK in mid-December broke through the 1.0567-1.0519 trading range, ultimately falling and touching the lower half of the familiar 1.0364-1.0238 range. In the short term, the pair is likely to continue trading in this price bracket, but as 2019 unfolds, NOK/SEK will likely break below the 1.0238 support and continue downward. Conservative estimate of next support level lies at 1.0112.
An opportunity to go short at 1.0238 might present itself as fundamental factors in 2019 (see below) will likely begin to gradually exert greater downward pressure on the pair.
NOK/SEK – Daily Chart
FUNDAMENTAL SETUP
Monetary policy from the Swedish and Norwegian central banks are not likely to significantly influence the pair’s movement in 2019. Both the Norges Bank in Norway and the Riksbank in Sweden are intending on raising rates at least once next year, and both appear to be adhering to a gradualist approach to monetary policy. The cautionary disposition of these central banks in large part stems from the uncertain and gloomy outlooks for global growth and international politics in 2019.
While Norway and Sweden are both export-driven countries with relatively high sensitivity to fluctuations in the business cycle and global politics – from the EU in particular – the Krone may be more vulnerable than its counterpart. This primarily has to do with Norway’s enormous petroleum industry.
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The sector itself provides approximately 9% of jobs, 12% of GDP, 13% of the state’s revenue, and 37% of exports. It therefore comes to no surprise that the movement in crude oil prices is almost perfectly mirrored in the fluctuations of Norway’s benchmark equity index.
Crude Oil and OBX Equity Index – Daily Chart
With forecasts of slower global growth next year, the demand for oil will likely – as it has been in the latter half of 2018 – fall and drag the Krone with it. Another factor which may exert downward pressure on the pair is the recent budget passed by the caretaker government in Sweden. The center-right spending plan may provide a boost to inflation and economic activity.
This in turn may give impetus for the Riksbank to continue along its policy path despite the many obstacles Sweden may face in 2019, not least of which is a possible snap election resulting from the country’s unprecedented political gridlock.
NOK/SEK – Daily Chart
NOK/SEK TRADING RESOURCES
- Join a free Q&A webinar and have your trading questions answered
- Just getting started? See our beginners’ guide for FX traders
- Having trouble with your strategy? Here’s the #1 mistake that traders make
--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitri on Twitter
