In this review, we suggest considering the British pound vs the Swedish krona currency pair. Its decline on the chart means the weakening of the pound and strengthening of the krona. Will GBP/SEK prices fall?
This currency pair has been rising since August of the last year. This was contributed by a noticeable difference in rates. The Swedish Central Bank (Riksbank) has maintained a negative rate of minus 0.5% for more than 2 years. The Bank of England, in contrast, raised the rate from 0.25% to the current level - plus 0.5% in September of the last year. Theoretically, the chart may correct down. The next meeting of the Bank of England will be held on May 10, 2018. No rate hike is expected due to weak economic data. The UK GDP growth in the first quarter of 2018 was less than expected. The manufacturing PMI was also worse than the forecast as reported by Markit/CIPS for April. The possible preservation of the loose monetary policy by the Bank of England is a moderately negative factor for the pound. The Central Bank of Sweden, on the contrary, may raise its rate by 0.1-0.25% in the current year. This was reported by the first deputy governor of the Swedish central bank Kerstin af Jochnick. The next Riksbank meeting will not be held soon - July 3, 2018. However, inflation data may have a strong influence on its decision. The nearest indicator will be released on May 9 - inflation in Sweden for April. According to Kerstin af Jochnick, inflation above the target level of 2% may cause problems for the economy and contribute to the rate hike.
On the daily timeframe, GBP/SEK: D1 approached the lower boundary of the rising channel. A sell position may be opened only in case it is breached. Investors’ expectations of a rate hike by the Swedish Central Bank and holding of the rate at the current level by the Bank of England may contribute to the price decrease of the currency pair.
- The Parabolic indicator gives a bearish signal.
- The Bollinger bands have widened, which indicates high volatility. The upper band is titled downward.
- The RSI indicator is above 50. It has formed a negative divergence.
- The MACD indicator gives bearish signals.
The bearish momentum may develop in case GBPSEK falls below its last fractal low at 11.8. This level may serve as an entry point. The initial stop loss may be placed above the last fractal high, the 2-year high and the Parabolic signal at 12.15. After opening the pending order, we shall move the stop to the next fractal high following the Bollinger and Parabolic signals. Thus, we are changing the potential profit/loss to the breakeven point. More risk-averse traders may switch to the 4-hour chart after the trade and place there a stop loss moving it in the direction of the trade. If the price meets the stop level at 11.8 without reaching the order at 12.15, we recommend to close the position: the market sustains internal changes that were not taken into account.
Summary of technical analysis
Position Sell
Sell stop Below 11,8
Stop loss Above 12,15