The daily chart of the USD/SEK is showing an interesting chart pattern that hints at a reversal in the long term trend of the pair.
Despite the renewal of the European debt crisis the Swedish krona has struggled to make up ground versus the euro. During the period of the Irish debt crisis the Swedish krona has since depreciated against both the euro and the dollar.
As fears of another fiscal crisis rip through Europe, the euro is stronger versus the Swedish currency. After months of speculation that Spain, Italy, or Portugal would be the next nation to require rescue funds from the European Financial Stability Mechanism, it was the Irish banking crisis that has caused Ireland to agree to a funding option from both the European Union and the International Monetary Fund.
Even Sweden is offering up to $1.6 billion in aid to shore up the Irish banking system. In a speech yesterday the Swedish Finance Minister announced his country’s intention to provide aid to a fellow EU member nation. To promote trade amongst EU members it is in Sweden’s best interest to give financial support Ireland.
It is no secret that a healthy EU will allow for more open trade and economic growth. This may explain Sweden’s enthusiasm for offering loans to Ireland. Should the economic crisis spread to Portugal and Spain, the economy of Sweden may experience a drop off in economic productivity.
As such, an explanation for the weakness in the Swedish krona may be a result from the European debt crisis. European nations that are part of the European Monetary Union account for more than 32% of Swedish exports. An economic slowdown in these nations could take a toll on the Swedish economy and is a downside risk for the Swedish krona.
The daily chart of the USD/SEK is showing some interesting chart patterns. The long term trend line which held since early June was recently breached. This trend line should serve as a new support level.
The pair made a head and shoulders bottom beginning in the month of October and through early November. The neck line has since been breached. This could signal a reversal of the long term downward trend. When measuring the neckline of the head and shoulders pattern an estimate of the potential move may be 2800 pips from the breach of the neck line. This measured move coincides with the support level from the August low at 7.0390.
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Russell Glaser is a Currency Analyst with ForexYard. Russell provides analysis in the FX spot market by employing fundamental research methodologies. In addition to currencies, Russell closely follows the correlation between the Commodities market and the movement of equities. His writings have been published on the ForexYard Trading Blog and associated partner sites. Prior to joining Forexyard, Russell Glaser served as a management consultant in the financial services industry, advising Fortune 100 companies. Russell holds a degree in finance from the Fisher College of Business at The Ohio State University.
