Scandi Daily 03.25
OVERVIEW – As we had warned in the previous daily commentary, the Norges Bank left rates on hold at 1.75% as widely expected and came out with a more downbeat assessment and outlook for the local economy. The decision to leave rates on hold was largely attributed to scaled back inflation expectations, softness within local data, a milder recovery in the broader European economy, and concerning yield differentials that had uncomfortably widened out in favor of the NOK. While the Norwegian economy has shown some relative outperformance in the face of global economic turmoil, it now appears that the central bank may have gotten slightly ahead of itself and we are now seeing some considerable profit taking in the local currency as a result. The krone has just now dropped to fresh 2010 lows against the USD and looks to be carving out a nice top against the Euro. The heavy sell-off in commodity prices has also not helped the krone’s cause. Meanwhile in Sweden, things have been somewhat more stable, although the krona also shows signs of weakness against many of the other major currencies in light of the rise in risk aversion and broad based pressure in the global equity markets.
Eur/Sek The market looks to have established a nice base just over 9.65, and we look for an eventual break to the upside over the coming days, with a push back over 9.83 required to confirm bullish bias. Only a close back below 9.65 would negate outlook and give reason for pause.
Eur/Nok Although overall price action remains grossly bearish, any additional declines from here seem to be limited, with the greater risk for some decent corrective upside over the medium term. The close below critical psychological barriers by the 8 handle in the previous week has failed to garner any bearish momentum, with the market rejecting Friday’s drop to Fresh 2010 lows and reversing sharply back above 8.00 on Monday. Next key resistance comes in by 8.13, and a break above this level will now be required to confirm bullish bias.
Usd/Sek Our view is highly constructive at current levels and favors continued USD appreciation over the coming weeks. We contend the market is attempting to carve out a major base rather than in the process of some bearish consolidation. Any setbacks are expected to be well supported by 7.00, with a higher low sought out ahead of the next major upside extension towards 7.50-75 over the medium-term.
Usd/Nok Has managed to just squeak out some fresh 2010 highs, with the market stalling out just shy of 6.05 thus far, ahead of the latest minor pullback. The overall structure remains grossly constructive and the latest break to fresh yearly highs now confirms a fresh medium-term higher low by 5.80 and likely opens the next upside extension back towards the 6.20 area over the coming days.
Gbp/Nok Although the market had recently broken below the major base from October 2009 at 8.80, daily studies were oversold and warned of some major corrective upside ahead. We continue to recommend building long positions at current levels in anticipation of a major bounce over the coming sessions. Look for the latest push back above 8.95 to now accelerate gains back towards 9.20 over the coming days, with the market triggering an inverse h&s pattern.
Nok/Jpy Has been well confined to a very choppy range trade over the past several weeks, largely defined between 15.00 and 16.50. Rallies have once again been well propped in the 15.00 area ahead of the latest minor bounce, and we continue to recommend playing the range.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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