USD/SEK analysis: No end in sight for Swedish krona crash

The USD/SEK exchange rate surged to the highest point since November 2022 as the divergence between the US and Swedish economies continued. The pair rose to a high of 11.08, which was ~8% above the lowest level this year.

US and Sweden’s divergence

The US and Sweden are moving in different directions. On the one hand, there are signs that the American economy is growing, with some economists expecting a 6% annual growth rate this year.

Key parts of the economy are doing well. For example, the housing market has been vibrant even as interest rates soared to the highest level in two decades. Housing starts, building permits, and home prices have remained resilient.

Most importantly, inflation is coming down while consumer spending has soared. The unemployment rate has remained close to the lowest level in more than five decades. As such, the Federal Reserve has hinted that it could continue hiking rates in the coming months.

Sweden, on the other hand, is going through a rough patch. Its inflation rate came in at 9.3% in July, which is higher than in most countries in Europe. Analysts believe that it will take a longer period to bring it close to the 2% target set by the Riksbank. 

Other parts of the economy are also worsening. For example, house prices have been in a freefall in the past few months. Prices dropped by 12% in 2022 and there are signs that the trend is continuing.

The situation is made worse by the soaring interest rates, which have pushed mortgage rates higher. Unlike in the UK, most mortgages in Sweden are free-floating, meaning that Swedes have seen their mortgage payments jump. 

Therefore, analysts believe that the Swedish economic slump will last for longer than expected. In a recent note, analysts at Swedbank said that the slowdown of the economy will last for at least two more years.

USD/SEK forecast

The daily chart shows that the USD to SEK pair has been in a strong bullish trend in the past few months. It recently crossed the important resistance level at 10.98, the highest point on July 6th. The pair rose above the 25-day and 50-day moving averages while the Relative Strength Index (RSI) is nearing its overbought level.

Therefore, the path of the least resistance for the pair is bullish, with the next level to watch being at 11.50. The stop-loss of this trade is at 10.90.