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Forex Analysis
Recent moves in the commodity space have been very beneficial to those countries that are net exporters and producers. Lumber and Iron Ore have both year-to-date had significant rises and the Swedish economy had benefitted greatly from both as Timber, hydropower, and iron ore constitute the resource base of their economy.
In the last year, lumber futures are up 294% and since the pandemic lows, the iron ore futures are up by 80% since the latest data point. In comparison, the Swedish Krona has appreciated 7% against the euro currency.
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Looking at the charts the monthly price action of the EURSEK has now clearly broken a rising trend line that spanned from the 2013 lows to December 2019 to late 2020 price levels. From the start of this year, the EURSEK had managed to correct a little bit of the downside move but April 2021 has now taken out the March lows and this little bullish correction looks to be over.
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On the Daily chart the EURSEK found some resistance as the price compressed under the daily 200ema and then the downside price action accelerated as we took out and accepted below the 50ema.
Looking at the ActivTrader sentiment indicator, the retail traders are not fully committed to the downside as 39% of them still feel that this could go bullish. As we squeeze these traders out of their long position, we should get an increased acceleration to the downside. The first and most obvious target is the double bottom that spans the low prices printed in late December 2020 and February 2021. Anyone long from there will puke their position and that is where we could get an acceleration to the 9.9000 price level.
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Historically the 9.9000 has been a pivot/ target for traders and as we are above, I expect that to act as significant support at the first time of asking.
The reason to be keeping an eye on the EURSEK today is that we have continued bullishness in the commodity markets as the US dollar retreats from its recent highs but also because we have the ECB meeting, rate decisions, and press conference culminating today.
The ECB is expected to defer their Quantitative Easing decisions whilst coronavirus continues to cause disruptions to the European Union economy. In the last ECB meeting minutes, they stated that they would significantly up the purchase pace of bonds in an attempt to dampen upward pressure on the European bond yields. They feel that higher yields would be detrimental to the recovery of the economy while it is still reeling from the pandemic woes and terrible vaccination rollout.
With the ECB not confident in the recovery of the Euro Area economy and with the reflation trade plus weakening US dollar, the Swedish Krona is looking likely to appreciate on the better Swedish fundamentals.
