OVERVIEW – We are now in the final weeks of trade for 2009, and as the decade comes to a close, we are starting to see the typical violent intraday end of year price action. The Greenback has come back into favor over the past few weeks, and following the Fed on Wednesday, has now managed to accelerate gains across the board.
We have talked for some time of a potential shift in global macro market dynamics that might force a situation in which the USD will once again be able to benefit on positive US developments and healthy risk appetite. We contend that the major force behind this shift ultimately stems from the Fed’s monetary policy and the central bank’s willingness to start to introduce a less accommodative policy. The latest move to remove stimulus measures into 2010 could very well be the catalyst needed to force this shift in dynamics and we could now be entering a period in which major US asset classes become more positively correlated. This could in turn weigh more heavily on the regional currencies over the medium-term as yield differentials narrow back in favor of the Greenback. Nevertheless, the NOK remains very well bid after the Norges Bank unexpectedly raised rates another 25bps to 1.75% this week. However, we still believe that the US is moving that much closer to a reversal of monetary policy which should still weigh on NOK yield differentials gong forward. Technical studies confirm our bearish Scandi outlook going forward. Looking ahead, Thursday sees the release of local unemployment data.

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. Latest 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 bottom. Ultimately, only below 8.24 negates.

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. The recent break back above 7.20 confirms bias and exposes 7.40-50 further up. Any setbacks are expected to be well supported ahead of 7.00.

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 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 has been well confined to a very choppy range trade over the past several weeks, largely defined between 15.00 and 16.50. The latest pullbacks have once again been well supported in the 15.00 area ahead of the latest bounce back into the range. From here, we recommend continuing to play the range high-lows.

 

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