USD/SEK falls to a 2-year low as signs of Swedish recovery emerge

USD/SEK falls to a 2-year low as signs of Swedish recovery emerge
Written by:
Crispus Nyaga
5th August, 10:21
  • The USD/SEK pair dropped after data showed that Swedish economy had its worst contraction in decades.
  • However, the 8.6% contraction was better than the 10%+ decline in most European countries.
  • Also, the services PMI and industrial production show that the country is on a recovery path.

The USD/SEK has declined today as traders react to mixed data from Sweden. The pair is down by 0.45% and is trading at 8.6800, which is close to the lowest level since June 2018.

USD/SEK
USD/SEK downward trend continues

Swedish GDP contracted sharply in the second quarter

Sweden addressed the coronavirus pandemic differently from other countries. Unlike other countries, the government decided to forego national lockdowns. As a result, companies continued to do business as usual while beaches remained happened.

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According to Statistics Sweden, the country’s GDP declined by 8.6% in the second quarter on a QoQ basis. That was worse than the first quarter’s growth of 0.1%. The economy contracted by 8.2% on a year-on-year basis.

This decline was the single quarterly decline since the bureau started to collect the data in 1980. However, it was still better than that of other countries. For example, data from the Eurozone showed that countries like Germany and Spain contracted by 10%. The United States economy contracted by more than 32% in the quarter. In a statement, an analyst at Swedbank said:

“Going forward, we expect the sentiment and activity indicators to keep improving as long as there are no major setbacks related to the coronavirus. However, considering the large drop in GDP, it will take a long time before economic activity returns to pre-crisis level.”

Meanwhile, another data from the bureau showed thar industrial production in June declined by 8.2% on a YoY basis. It rose by 8.8% on a month-on-month basis. This production happened as orders rose by 6.7% mostly because of a 19.8% increase of the motor industry.

At the same time, a data released by Swedbank showed that the services PMI rose to 54.8 in July. That was higher than the previous 50.9. It was the highest it has been since February this year.

USD/SEK technical outlook

USD/SEK

The weekly chart shown above shows that the USD/SEK has been in a sharp downward trend since March 23, when it was trading at 10.4868. The pair has fallen in the past seven consecutive months, and is now trading at the lowest level since June 18.

The price has moved below the 61.8% Fibonacci retracement level and is also below the short and medium-term moving averages. Also, the RSI has moved to the lowest level since September 2017.

Therefore, it seems like bears are in total control, which means that the downward trend is likely to continue. If it does, the next main support to watch will be the 8.500 level.

On the flip side, a move above the 50% Fibonacci retracement level at 9.1530 will invalidate this trend. It will mean that there are more bulls in the market.

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