USD/SEK nosedives as bears aim for the 9.00 support

USD/SEK nosedives as bears aim for the 9.00 support
  • The USD/SEK pair declined to its lowest level since 2019 as traders reacted to weak Swedish unemployment rate.
  • Swedish unemployment rate rose to 9% in June, its highest level in ten years.
  • The US dollar index declined by 0.30% as the number of coronavirus cases in the US continued to rise.

The USD/SEK is approaching a major milestone today. The pair, which is down by 0.63%, is trading at 9.1391, which is the lowest it has been since February 2019. The Swedish krona is also the second-best performing currency in the US dollar index (DXY).

USD/SEK touches its February 2019 lows

Swedish unemployment rate jumps

The USD/SEK pair is falling even after relatively disappointing numbers from the Swedish Public Employment Service. The data showed that more than 466,000 people registered themselves for unemployment benefits at the end of June. That was 133k higher than those who registered themselves for these benefits in the previous month.

As a result, the unemployment rate rose from the previous 8.5% to 9.0%, which is the highest level in ten years.

According to the bureau, unemployment rate is rising in all parts of the country as firms downsize while others go out of business. The rate of unemployment was highest in Södermanland, Skåne and Gävleborg, where the rate jumped to 11.4%, 11.3%, and 11.1%. At the same time, the lowest rate was at Gotland, which had just 6.7%. The report said:

“Those who first become unemployed when the demand for labour decreases are people with temporary employment and people who are new to the labour market, especially young people and those born abroad.”

These numbers show that Sweden, too, has been affected by the pandemic even after ignoring large scale stay-at-home orders. For example, recent data from Statistics Sweden, showed that private sector production fell by 15% in May while household consumption declined by 9.7%.

Tomorrow, the statistics office will release the consumer price index data from Sweden. Analysts expect the data to show that prices remained under pressure, with the headline CPI and core CPI rising by 0.5%.

In its most recent interest rate decision, Riksbank said that it expects the CPI to rise to be at 0.5% this year from 1.5% in 2019. The rate will then rise to 1.4% in 2021. It also expects the rate to end the year at 8.7% before rising to 9.2% in the coming year.

Dollar weakness pushes USD/SEK lower

The overall dollar weakness is the main reason why the USD/SEK pair is trading at the current lows. The dollar index has fallen by 0.35% and is down against all constituents save for Japanese yen and Swiss franc.

Analysts blame the dollar weakness to the rising number of coronavirus cases in the United States. According to health officials, the US confirmed more than 56,000 new cases on Sunday. Florida, one of the most important states, saw cases jump by more than 15,000. As such, analysts expect that the Fed could be forced to implement more actions, including negative rates that would harm the dollar.

The upcoming earning season could be a factor also. The season will kick-off tomorrow when major banks like Wells Fargo, Citigroup, and JP Morgan will release their earnings. According to Refinitiv, analysts expect companies to report the lowest earnings since 1968.

USD/SEK technical outlook

USD/SEK technical analysis

On the weekly chart, the USD/SEK pair is trading at 9.1395, which is the lowest it has been since February last year. The price is below the short and medium-term moving averages and the 50% Fibonacci retracement level. Also, the pair is trading below the Ichimoku cloud. Therefore, it seems that bears are in total control, which means that they will start targeting the next support at 9.000.

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