The Swedish krona (SEK) appreciated rapidly following the recent FOMC policy decision, and now, a breakout from a bear flag pattern could present an excellent near-term short opportunity in USDSEK.
The Swedish krona (SEK) is a thinly traded currency, but in my opinion, that is a serious oversight on the part of forex traders. In fact, the USDSEK is traditionally a very technical pair, and one that provides some wonderful trading opportunities, much like the one that seems to be developing right now.
After a significant drop following the Federal Open Market Committee (FOMC) decision to delay tapering of asset purchases, USDSEK has been trading in a classic bear flag pattern on both the daily and four-hour charts. Major resistance sits at 6.500, which is a re-test of the major trend line that ran from February to September. A breakdown out of the flag would target new lows below 6.2.
Guest Commentary: The Bear Flag Pattern in USD/SEK
The 50-day exponential moving average (EMA) sits at 6.515, adding further significance to this level. Bears should keep a careful eye on the developing flag, however, and look to trade a break of the lower flag boundary.
Below the 6.4 level would be a great start to the next leg down, and only a move back above that 6.500 figure would call this bearish case into doubt. Until then, the downside potential remains firmly in place, providing a potentially compelling technical set-up in USDSEK.
By Liam McMahon, Currency Strategist, GlobalFxClub.com