OVERVIEW – The developments in price action over the past 24 hours have been most interesting, with US equities and currencies coming back under pressure and the USD benefitting across the board. While most have attributed the moves to some natural profit taking from an overextended market, others have begun to once again weigh the risks to the prospect for a double dip type global recession. The wide spread consensus is that the Norges Bank will indeed raise rates on Wednesday by 25 bps to 1.50%, but the Norwegian central bank may grow a little more anxious with oil prices retreating and risk aversion back on the rise. Any threat of shift back into a contractionary market environment will surely bode unfavorably to central banks looking to adopt a more restrictive monetary policy. As such, while the local economy has indeed outperformed and separated itself throughout the global downturn, the Norges Bank also needs to be careful that it doesn’t unnecessarily expose itself to a premature and overly restrictive policy shift. Looking ahead, the calendar is all Sweden centric with the release of producer prices and household lending data at 8:30GMT.
Eur/Sek continues to consolidate off of the 2009 lows from August and we contend that the market is in the process of carving out a medium-term base. Any setbacks are expected to be well supported ahead of 10.05, with a break back above 10.45 to confirm basing prospects and accelerate gains. Initial resistance comes in by 10.22 with a break on Tuesday to reaffirm bias.
Eur/Nok fresh yearly low last Thursday by 8.24 but we feel that the market is finally now exhausted and on the verge of some major upside over the medium-term. Aggressive players can get long at current levels, with a break back above 8.40 accelerating. Only back below 8.30 would delay.
USD/SEK DAILY
Charts created using Bloomberg – Prepared by Joel Kruger
Usd/Sek traded down to a fresh yearly low by 6.75 on Monday ahead of the latest sharp reversal to set up a bullish outside day formation. Despite the current underlying downtrend, our view is nevertheless constructive at current levels and favors 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. Monday’s bullish reversal day should get things going but ultimately a break back above 7.10 will be required to officially shift the structure.
Usd/Nok is in the process of consolidating just off of the yearly lows by 5.50. However, given the medium-term stretched technical studies, we favor the risks for significant upside over the coming weeks with the market now in the process of attempting to carve out a meaningful base. Any additional setbacks should therefore be limited with a break and close back above the 20-Day SMA to reaffirm bullish outlook.
Gbp/Nok finally showing signs of recovery after basing out by 8.82 in the previous week. Daily studies show plenty of room for additional corrective upside, and we look for a push back towards 9.50 over the near-term. Setbacks should now be well supported ahead of 9.00. Look for a fresh upside extension on a break back above 9.30.
Nok/Jpy as had be warned, the market was well overextended above 16.50 and the market has since put in a bearish outside day on Monday. Look for the reversal day to mark a top by 16.63, with deeper setbacks now favored back towards initial support by 16.00 over the coming days. Only back above 16.63 negates.
Written by Joel Kruger
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