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A Textbook Bear Flag Set-up in USD/SEK

A Textbook Bear Flag Set-up in USD/SEK

Liam McMahon, Head Forex Trading Instructor

The Swedish krona (SEK) appreciated rapidly following the recent FOMC policy decision, and now, a breakout from a bear flag pattern could present an excellent near-term short opportunity in USDSEK.

The Swedish krona (SEK) is a thinly traded currency, but in my opinion, that is a serious oversight on the part of forex traders. In fact, the USDSEK is traditionally a very technical pair, and one that provides some wonderful trading opportunities, much like the one that seems to be developing right now.

After a significant drop following the Federal Open Market Committee (FOMC) decision to delay tapering of asset purchases, USDSEK has been trading in a classic bear flag pattern on both the daily and four-hour charts. Major resistance sits at 6.500, which is a re-test of the major trend line that ran from February to September. A breakdown out of the flag would target new lows below 6.2.

Guest Commentary: The Bear Flag Pattern in USD/SEK

A_Textbook_Bear_Flag_Set-up_in_USDSEK_body_GuestCommentary_LMcMahon_September26A.png, A Textbook Bear Flag Set-up in USD/SEK

The 50-day exponential moving average (EMA) sits at 6.515, adding further significance to this level. Bears should keep a careful eye on the developing flag, however, and look to trade a break of the lower flag boundary.

Below the 6.4 level would be a great start to the next leg down, and only a move back above that 6.500 figure would call this bearish case into doubt. Until then, the downside potential remains firmly in place, providing a potentially compelling technical set-up in USDSEK.

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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