OMX 30 Near All-Time High, USD/SEK Continues Steady Depreciation

Key Talking Points:

• Risk-on sentiment gathers momentum as we head towards year-end
• Coronavirus cases worsen worldwide
• OMX 30 aims at all-time high as the Swedish Krona remains strong

Equity markets continue to push higher in what can be considered as a “santa rally” in the last few trading weeks of the year. The reason remains pretty much unchanged, with Brexit and US stimulus hopes taking center stage, with an added push from a Fed that continues to be accommodative and supportive of the economy, which translates (rightly or wrongly) to keeping asset prices afloat.

But the coronavirus pandemic is still in the back of the mind of traders, even if pushed back very far, and worsening conditions worldwide has already seen caution creeping into the markets in the last few days, which could lead to an increase in selling pressure if things get worse towards the holidays, when liquidity drops down significantly.

Stock Market Holiday Calendar 2020/21

SWEDEN SEES A SPIKE IN CORONAVIRUS INFECTIONS

Sweden, which has been an outlier throughout the pandemic as it has managed to avoid strict lockdowns and has kept most bars, restaurants and shops open, is now facing increased pressure to take action as new infections and deaths are rising rapidly. On Monday we saw Swedish Prime Minister, Stefan Lofven, say that the country’s experts had underestimated the likelihood of a second wave. Hospitals are operating at full capacity and doctors are warning that things are going to get much worse if strict action isn’t taken, but the government has still allowed ski lifts to open and Christmas gatherings are permitted with no strict restrictions.

Source: Worldometer

OMX 30 Daily chart

Looking at the Swedish stock index, the OMX 30 has done a good job at gaining back the coronavirus losses seen back in March, with the index now hovering around its March 2020 peak. Price actually managed to push above the yearly high back at the end of November, but bullish sentiment has since taken a hit.

Moving averages support another push higher for the OMX 30, with the 50-day moving average showing up as a short-term support around the 1,865 level. Further selling pressure is likely to see a re-test of the 1,800 line, but I expect this area to hold pretty well into the new year, as long as there are no significant bearish pressures for the market in general, possibly relating to Brexit or Covid-19. On the upside, the objective will be the 1,950 mark, an all time high seen back in November, but expect there to be resistance along the way.

SWEDISH KRONA GAINS MOMENTUM

The Swedish Krona has been very strong since the pullbacks seen in March, with USD/SEK falling 21% since, hitting its lowest point since April 2018. This of course has had influence from the weakening US Dollar, but the Krona has also been gaining strength against other major currencies like the Pound, the Euro, and the Yen.

Sweden’s handling of the pandemic up until the Autumn was likely a reason for this, as the currency may have been seen as somewhat of a safe-haven, bit even the Swedish Riksbank mentioned the uncomfortable strength in the Swedish currency in its last monetary policy meeting, keeping a dovish rhetoric which managed to soften the exchange rate slightly.

But there is little the Swedish Central Bank can do to stop the continued depreciation of USD/SEK, which is expected to continue into the new year, as the path of least resistance continues to be lower, despite the pair showing strong oversold conditions. No short-term support is seen after the pair falls below 8.2920 (November low) so we look at price action back in 2018 and see that 8.1485 may be a key area if selling pressure continues.

USD/SEK Weekly Chart

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--- Written by Daniela Sabin Hathorn, Market Analyst

Follow Daniela on Twitter @HathornSabin