Looking over the fundamentals tells the story of an ascendant Scandinavia in the currency world. The Swedish krona (SEK) and Norwegian krone (NOK) are among the globe’s highest yielding currencies from a fundamental standpoint. But why then does the technical data read differently? Are we witnessing the wind being taken out of the sails of the Norwegian and Swedish kroner?
Against the US dollar, both the SEK and NOK have pushed strongly bullish to the point of record highs. Several analyses herald the Swedish krona in particular as being among the top performers in the forex market since early 2010. The Riksbank is even on schedule to lift its short-term lending rate at each policy meeting this year.
Norges Bank is also considering monetary policy tightening in 2011, though it has been far more reluctant than its Swedish neighbor in doing so. Growth in Norway has been only mildly limited in comparison but by no means insufficient for such a move by its central bank.
The linkage of the NOK to Crude Oil prices may also have something to do with recent stagnation in the Scandinavian currency as oil has been trading flat within a tight range recently.
Technical Data Supporting Reversal?
Regardless of this fundamental data supporting a strengthening SEK and NOK, on the technical charts what we see is a consolidation on both pairs against the USD and a heavy push-back by the greenback.
According to reports from several currency strategists, a material base may be forming just above the 6.20 level on the USD/SEK, with a confirmation of a trend reversal potentially found slightly above 6.50. The USD/NOK is forming a similar base near 5.45 with a confirmation point found a similar distance near 5.73.
If the pairs move above their confirmation point, as opposed to dropping back within their heavily bearish trend, there is a chance the market will adjust its sentiment and begin shorting the Scandinavian currencies in expectations for a mid-year flop. Both pairs are approaching a decision point and it will be interesting to watch their next move unwind.