OVERVIEW – We have been warning for some time that the regional currencies are on the verge of some major corrective weakness over the medium-term, with both the NOK and SEK in the process of carving out some significant tops against both the Euro and USD. The latest wave of risk aversion seems to be hitting the market harder than what we have been accustomed to seeing, after the source for concerns has now originated outside of the US, with Dubai announcing that it is seeking a standstill on its debt repayments. This in conjunction with some rumors of an emergency ECB rate cut, a potential downgrade to the UK 2009 growth outlook, and some wild price action in the Yen, have forced some material position reductions in the global equity and commodity markets, which has weighed heavily on the very correlated Scandi currencies. Technical studies have be warning of the NOK and SEK weakness for some time, and fundamentals seems to be finally catching up. Looking ahead, economic data comes from Sweden on Friday with all eyes on GDP and retail sales.   

Eur/Sek pullbacks should be well propped ahead of 10.15 with the market in the process of carving a meaningful base on the daily chart. Friday’s price action reaffirms outlook with the market finally taking out the multi-day consolidation highs by 10.53 to now expose 10.60-70 further up.

Eur/Nok price action confirming our constructive outlook and we  favor of a bullish resumption back above key short-term resistance at 8.56 over the coming days.  A closer look at the daily chart reveals the potential formation of a major double bottom. Ultimately, only below 8.24 negates.

Usd/Sek our view is still constructive at current levels despite the latest setbacks 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. The recent break back above 7.10 confirms bias and exposes 7.40-50 further up. Any setbacks are expected to be well supported ahead of 6.75, while back above 7.20 accelerates. 

Usd/Nok even with the latest pullbacks, we still retain a constructive outlook for the pair with the market looking to carve out a major double bottom on the daily chart.  We do not anticipate a retest of the recent 5.50 lows and instead favor a bounce at current levels back towards neckline resistance at 5.85, a break of which will trigger the double bottom formation.

Gbp/Nok recovery rally has pulled back since reaching 9.53 in the previous week, but our outlook remains constructive, and a higher low is now sought out above 9.00, ideally by 9.23, ahead of the next upside extension beyond 9.53.

Nok/Jpy as had be warned, the market was well overextended above 16.50 and the price has since sharply retreated back below the well defined multi-week range lows in the 15.00 area. A close below 15.00 on Friday would suggest that the market could be poised for a bearish resumption eying a retest of the July lows over the coming days. However, with daily studies approaching oversold, we would not rule out the possibility for a short-term bottom at current levels in favor of some more choppy range trade.

Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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