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
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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