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A Big Breakout Brewing in a Little-Known Pair

A Big Breakout Brewing in a Little-Known Pair

Liam McMahon, Head Forex Trading Instructor

Talking Points:

  • New Stimulus Measures to Weaken NOK, SEK
  • 2 Key Resistance Levels on NOK/SEK Daily Chart
  • A Lofty Upside Target That's in Reach

While USDSEK and USDNOK have become more popular trading instruments over the past few months, NOKSEK remains more than a bit under the radar, which is unfortunate because the pair may be prepping for a large move to the upside.

With both the Swedish and Norwegian governments and their central banks concerned about the value of the currencies and the state of their respective economic recoveries, we could see both the Swedish krona (SEK) and Norwegian krone (NOK) depreciate against the euro (EUR) and US dollar (USD).

However, the affect this would have on NOKSEK is perhaps most compelling, and that will depend on what methods are used by Swedish and Norwegian policymakers in their attempts to boost their respective economies and weaken the currencies.

Earlier this month, Norwegian Prime Minister Erna Solberg promised to cut the budget proposal and weaken NOK in an effort to aid exporters, specifically those outside of the oil and gas sector.

On the other hand, major inflation fears in Sweden have given rise to speculation about a new rate cut from the Swedish central bank. Inflation figures released earlier this month showed that Sweden has entered a deflationary period, and should we see the Riksbank cut rates at its December meeting, NOKSEK should really initiate a break of its long-standing downtrend.

The technical picture for NOKSEK is also attractive, as the pair approaches two key resistance levels on the daily chart below. These descending trend lines should provide a nice zone to watch for a possible breakout trade as the pair looks to reverse its year-long downtrend.

Guest Commentary: Potential Breakout Area for NOK/SEK

A_Big_Breakout_Brewing_in_a_Little_Known_Pair_body_GuestCommentary_LMcMahon_November21A.png, A Big Breakout Brewing in a Little-Known Pair

The major resistance levels are approximately 1.0920 and 1.1025. Upside targets extend as high as 1.14, which is roughly the 61.8% Fibonacci retracement level of the major downtrend.

By Liam McMahon, Currency Strategist, GlobalFxClub.com

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

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