For most of the last two years, the Swedish krona has been one of the worst-performing G10 currencies, even managing to weaken by over 15% against the embattled euro since bottoming in early 2013. The krona’s poor performance has been driven by a number of fundamental factors, prominently including consistent deflation and related easing from the Riksbank, but the technical picture may finally be starting to turn in favor of the SEK.
As the daily chart below shows, EUR/SEK ran into resistance at 9.70 in both mid-December and mid-February, and the pair has since dropped all the way down below the intervening low, or the “neckline” of the double top pattern at 9.26. It is notoriously difficult to identify effective double top patterns, but the secondary indicators further support the view that EUR/SEK may have carved out a significant medium-term top. Both the MACD and RSI indicators showed a clear bearish divergence at the recent highs, and both indicators have now dropped to their lowest levels in over a year. Combined with today’s drop through the bottom of the 2-year bullish channel, there is plenty of technical evidence that the EUR/SEK could weaken further in the coming weeks.
If EUR/SEK continues to drop, the next major level of support is the 38.2% Fibonacci retracement of the 2-year rally at 9.1280. A break below that potential floor could expose psychological support at 9.00 or even the double top measured move target down around 8.8500 later this year. As long as the pair stays below its bullish channel and 100-day MA around 9.35, the Swedish krona could finally enjoy its day in the day in the sun.
Source: FOREX.com
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