Denmark Under Pressure to Swap DKK for EUR

October 6th, 2009 Posted in Chief Analyst Special Report

Name: Greg Holden

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Last week’s surprising employment data from the United States had 2 Scandinavian currencies moderately depreciating versus the greenback and euro until the start of this week. The Swedish and Danish Krona both hit a near-1-month low against the Dollar last Friday, but as of this week they have breached the bearish channel they had entered and are now somewhat stable.

There are rumors that Denmark is under pressure to begin using the EUR instead of the DKK, following Ireland’s approval of the Lisbon Treaty last Friday. Denmark’s opt-out policies towards the EU have been a point of contention among political groups in that country. If a referendum is held, there is talk of the DKK being swapped for the EUR, especially since it is already pegged to that currency. This momentum is being held back by comments from the Nationalbanken which is fighting to stave off a dash to sell the Danish Krona and undermine their latest progress towards financial stability.

In other news, the Norwegian Krone has continued appreciating versus the EUR and USD from a stream of positive data, as well as from strong and stable oil prices. Since Norway is a large oil exporting country, the recent stability for Crude Oil prices has helped their economy experience growth much faster than was anticipated and this is reflected by the continuation of the NOK’s bullish trend.

- The chart below is the 4-hour chart for the USD/NOK.

- The indicators used are the Relative Strength Index (RSI), Slow Stochastic, and MACD/OsMA.

- Point 1: This currency has experienced a clear bearish channel (in favor of the NOK) for the past month and shows few indications that it will cease this trend anytime soon.

- Point 2: The fact that the price floats in the over-sold territory on the RSI merely indicates modest upward pressure.

- Point 3: The bullish cross on the Slow Stochastic is a stronger indication that an upward correction is due. However…

- Point 4: The MACD/OsMA shows 2 downward cascading lines, which indicates that this pair has more bearish momentum left before it reverses course.

- All of the above information confirms the downward trend of this pair. It will likely get close to the lower border of the bearish channel before reversing course and fluctuating inside this natural trend.

usdnok 4-hour