By Talking Points:
- Break and Retest of Longer-Term Downtrend
- A "Game-Changing" Fundamental Factor
- Possible Long Set-up in USD/SEK
Rising household income is currently acting as the main source of growth for the Swedish economy, which is, for the time being, doing quite well. However, the nation’s export industry is lagging and employment is still rising, and along with low inflation and a dovish central bank (Riksbank), we have seen recent pressure on the Swedish krone (SEK) and prevailing weakness against the US dollar (USD).
As mentioned in previous analysis, USDSEK did recently rebound from a key support zone (6.30-6.35) to reach two upside price targets of 6.48 and 6.57, respectively. Prior to that, however, the pair declined from a longer-term resistance area around 6.60 and retested an earlier breakout point from summer 2013.
See also: Possible Range-Bound Rally in USD/SEK
Now, having broken out of the downtrend in place since summer 2013, USDSEK has retested this trend line from above, showing a (bullish) reversal formation from the support area. This suggests an increased likelihood for a real breakout and the resumption of a new uptrend featuring higher highs and higher lows.
Guest Commentary: Technical Outlook for USD/SEK
Support: 6.50-6.45, 6.40, and 6.30
Resistance: 6.57-6.60, 6.70, and 6.85-6.95
However, in order to clear the way for further upside in USDSEK, the pair will need to break and hold above the key resistance area near 6.60. If so, price could trade as high as 6.70 in Q2 and ultimately reach last year’s high of 6.85.
Meanwhile, on the downside, established support lies between 6.45 and 6.50. A break (and daily close) below 6.45 would jeopardize the current bullish set-up in place for USDSEK (see below).
It is important to point out that underlying macro factors from Sweden also support a weaker krone and higher USDSEK. Inflation remains very low, actually below Riksbank estimates for the coming months, which is pushing front-end rates to new all-time lows. This supports a possible rate hike as soon as July and further warrants new long positions in USDSEK.
Long Trade Idea for USD/SEK
Using half the desired position, go long USDSEK at current price levels (between 6.55 and 6.50). Add to the initial position if price comes down to test the next support area just above 6.45. The stop loss should be executed if USDSEK closes below 6.42 on the daily time frame.
The price targets for this current trade would be 6.68 and then 6.82. If the first target is reached, the stop loss should be moved to the entry price in order to manage risk more effectively.
By Rafiul Hossain, Guest Contributor, DailyFX.com
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