Tips And Tricks For Trading The USD/SEK Pair

What factors impact on the USD/SEK currency pair?

The USD/SEK currency pair has a 52-week high of 8.8372 and a 52-week low of 7.8944. On Friday, 3 June 2016 the pair was trading at 8.1600, down 1.98% or 0.1655. The USD/SEK (US dollar and Swedish krona) is a combination of a major currency in the USD and a minor currency in the Swedish krona. The greenback is by far the most widely traded currency in the world, and it also functions as one of the world’s reserve currencies.

That the euro is also a reserve currency is less significant because the dollar assumes more than double the share of the euro on the global stage. The Swedish krona, or Swedish crown is a free-floating currency, and Sweden despite being part of Europe, has not adopted the euro as its currency. It did so by refusing to join the EERM (European Exchange Rate Mechanism).

When traders analyze the performance of the USD/SEK currency pair, they also watch the USD/EUR currency pair (EUR/USD currency pair) very closely. The fact that Sweden is closely associated with various other Scandinavian countries is important to bear in mind when evaluating the performance of the USD/SEK currency pair.

Factors impacting upon the USD/SEK currency pair

Any disruptions to trade between Sweden and its Scandinavian trading partners will naturally impact upon the volatility of the currency pair, and this includes Sweden’s chief exports such as timber, heavy machinery and automobiles. Presently, the sentiment for the USD/SEK currency pair is bullish, and there are several reasons for this. The most obvious reason for bullish sentiment at present is the impending Fed decision after the FOMC meeting on June 14-15, 2016.

Strangely though, according to the CME Group FedWatch tool, the likelihood of a June 15 rate hike to 0.75% has plummeted from 20.6% on Thursday, 2 June 2016 to just 5.6% on Friday, 3 June 2016. It is clear from these numbers that few economists and analysts believe that the Fed will move on interest rates in the next two weeks. This will invariably put the markets at ease to a degree, although everyone will be waiting for the June 6 speech  by Janet Yellen in Philadelphia. That will provide a clear indication as to which direction the Fed is moving. The data offers an implied probability of 94.4% that the interest rate will remain at its current level of 0.50%.

The USD/SEK currency pair will likely strengthen if a rate hike comes to past on the following days, and here are the statistics that are presently available:

• On 27 July 2016 there is a 31% likelihood of a 0.75% interest-rate, down from 48.6% on 2 June 2016
• On 21 September 2016 there is a 39.7% likelihood of a 0.75% interest rate, down from 47.4% on 2 June 2016
• On 2 November 2016 there is a 40.5% likelihood of a 0.75% interest rate, down from 46.5% on 2 June 2016

All in all, the likelihood of interest rates rising in the near future have diminished greatly. For December 14, 2016 the current probability of a 0.75% interest rate is 43%, up from 40.3% on 2 June 2016. If the Fed only moves towards the end of the year as most analysts are expecting, the USD/SEK currency pair could well go through multiple cyclical movements before trending to the upside heading into 2017.

There are factors beyond the Fed that are weighing on the currency pair and these include US economic data and Swedish economic data. Let’s take a look at some of these metrics to understand the relative strengths and weaknesses of both economies and how this might play on the currency pair:

• POSTIVE for the SEK OVERALL: The Swedish GDP growth rate is 0.5%, the unemployment rate is 7.3% (down from 7.7%), the inflation rate is 0.8% and the interest-rate is -0.5%. The government debt/GDP ratio has decreased from 44.8% to 43.4%.
• POSTIVE for the USD OVERALL: The US GDP growth rate is 0.8%, down from 1.4% previously. The unemployment rate has dropped to 4.7% from 5%, and inflation rate has climbed to 1.1% from 0.9%. The interest-rate is holding steady at 0.5% and the government Debt/GDP ratio is 104% up slightly from 103%. The only negative that recently came out of the US was the nonfarm payroll employment numbers that were released on Friday with just 38,000 new jobs created during the month of May. However, this must be viewed in context since the Verizon strike has contributed sharply to the skewed numbers.

The takeaway according to analysts: It’s a coin toss and since the greenback is unlikely to experience a rate hike soon, economic data will play a bigger part.