About one week ago I mention of prospect of possibly getting into a trade involving Swedish Krona (SEK). It made an all time low against the Euro, and it became even weaker since. The Krona is not a currency I trade often. It has relatively high costs of doing business (wide spread) and tends to have inactive time periods during the day. Current situation, however, creates potential opportunity on larger time frames, and warrants a closer look. Besides, SEK is not as “exotic” as it once was. Some published figures indicate that SEK trading volume overcame the one of Swiss Franc, increasing Krona’s stature.
Newly released figures showed the Swedish economy put in its worst performance since 1940 in the fourth quarter. Swedish GDP contracted by a weaker-than-expected 2.4 per cent in the last three months of last year, adding on to a downwardly revised 1 per cent fall in the third quarter and taking the yearly contraction to 4.9 per cent. This figures were terrible but not a total shock given that Sweden’s exports account for 50 per cent of total GDP and bearing in mind the depressed state of the global economy. SEK started this bear market in 2005, before current financial crisis truly erupted, and sell off rapidly accelerated in 2008 and early parts of 2009. Speed and size of the move on long term chart of EUR-SEK indicate possible blowout top.

Monthly chart of EUR-SEK covers about 10 years. We can see the breakout above 10.0000 and massive run after. Price reached 11.8000 last week, another all time high. I put FIB retracement levels over this move. Should current level prove to be the top, we could expect for  the price to retreat to as low as just under 10.0000. or 62% level. At this point it is for illustrative purposes only, because as of yet we don’t know where the top is. But it gives us a good idea about the magnitude of the move down, well, potential move. Given very large time frame, even if right, this might take many months or couple of years. That’s the reason I’m not interested in trade on this chart- way too long.
Weekly chart looks better for a trade more to my liking.

When parabolic moves to the upside reach apex, most dramatic price depreciation happens within first few candles(bars), no matter what time frame. In this example I plan to have a sell order just under the low of the most recent candle. If the price keeps making new high, my order will be adjusted every week. The way things look now, I think we will see a little more appreciation, to maybe above 12.0000. In this case I will zoom in to daily charts with the same plan. For now, weekly chart is the play with an objective of 4000-5000 pips. Exact number will  depend on chart features at the time of trade.
Swedish financial authorities are not very happy with this slump.  Swedish central bank, which slashed interest rates by 100 basis points to 1 per cent earlier this month, would have to cut rates again by at least a further 25 basis points at its next policy meeting, scheduled for April 21. In other words, they are mimicking most other central banks in the world. Riksbank officials are optimistic, assessment is that the weakening of Krona is temporary and primarily a result of the global financial crisis. Speaking of interest rates, during 1992 currency crisis that swept Europe, SEK overnight rate was bumped to 500%(!) on annual bases. It was in an attempt to support sinking Krona. If memory serves, it lasted about 1 or 2 weeks. How times have changed.

Mike K.