Sweden’s March PMI came in at 47.3, sharply lower than expectations of 54.2 and 54.6 previous. The surprising dismal read weakened SEK and reversed the early decline seen in EUR/SEK during Asian trading hours. Price broke 8.38 and the rising Channel Top easily but faced resistance around 8.40.
The bullish revival is welcomed for traders who have entered on the rebound from Channel bottom. Price did not fully test Channel top before the decline, with consolidation found between 29th March and 2nd April providing enough resistance to send price on a tail spin earlier. To fully appreciate current bullish breakout, we only need to look at the stochastic reading, which has now formed an interim bottom instead of heading lower, suggesting that the move back towards 8.32/Channel Bottom has been invalidated.
From the Daily Chart, it’s harder to establish any bullish bias, as price has declined steadily from Jan’s high without any proper response from the bulls. The latest attempted recovery from March lows stopped short of clearing the 8.45 mark, the lower end of consolidation found in Feb. For current bearishness to be lifted, price should trade above 8.5 and ideally 8.55 for bulls to gain any sort of foothold, and certainly we are very far away from that currently.
If we were to only look at the rally since 15th March, and ignore the bigger bearish outlook, the odds for bulls do not seem so bad afterall. The rising trendline is still intact, and Stochastic readings have just crossed the Signal line, hinting that bearish momentum has momentarily halted. If bulls are able to maintain current initiative, a push above 8.45 can be construed as a Double Bottom setup which can help price to move higher back towards its former heights between 8.5 – 8.7.
Fundamentally, such a scenario would require continued weakness in Swedish economic health and a big change in fortunes for the Euro-Zone. It is not hard to imagine further deterioration of Swedish economy given the bleak outlook of its neighbors. However, a return of health from Euro-Zone is harder to fathom considering the recent Cyprus saga and PMI data being less than satisfactory across Euro-Zone. Nonetheless, with ECB’s rate decision and Draghi’s scheduled speech coming in a few hours time, we could potentially see price moving either way strongly depending on what Draghi has to say about recent events. Should Draghi manage to rile up the bulls once more just like he did with the OMT announcement, EUR/SEK will be 1 step closer to fulfill the double-bottom pattern paving the way out of current sell-off. Similarly, all the weakness SEK is showing currently may come to naught if Draghi surprise with a rate cut (unlikely), or start shifting his outlook from a mildly upbeat to a dovish one.
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