How To Use the Core Perimeter Model to Trade the SEK, NOK, and Euro

Norwegian Krone, Swedish Krona, Eurozone Economy Euro Analysis, Analyzing the Core Perimeter Model

Key Points:

  • The relationship between EU, Norway, and Sweden fits in the Core Perimeter Model.
  • What are the trade and economic relations between Norway, Sweden, and the Eurozone?
  • Trading the Euro against the Norwegian krone and the Swedish Krona.
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The Nordic asset business cycle sensitivity that makes them riskier, but also provides higher return rates, tends to improve their current appeal to safe EU based counterparts in the optimistic trade environment. Essentially, this results in the weaker Nordic/Euro exchange rates since investors are highly prioritizing profits across capital preservation. This capital flow is highly underpinned by this interconnected economic network, which Sweden, Norway, and Eurozone all share.

The Norway and Sweden – EU Relationship: Economics, Trade & The NOK/EUR, EUR/SEK Rate:

The increasing majority of the Norwegian and Swedish experts flowing to Europe’s heart. So, if the investors are hugely buoyant and get an optimistic outlook on the growth, the trading relationship results in capital running from this core, which is the EU and perimeter (Nordic) countries. Huge demand from the Eurozone is a critical source for the economic energy for the outward-facing Scandinavian economy. This is similar to what is happening in the EUR/USD descending wedge pattern.

Nevertheless, during this economic downturn, the existing direction for the capital flow reverses. This often results in stronger Nordic/Euro exchange rates as investors get more risk-averse and minimize exposure to risky assets like the SEK and NOK. When it comes to the strength and stability of Europe works as the magnet for the investors with more capital looking to hold when it would be comparatively less exposed to additional volatility.

Even if this Eurozone itself was the epicenter of the market, trading’s technically preferred holding the capital in the Eurozone or the German Bunds over the Nordic counterparts. In other words, capital flows from the core to perimeter in the ‘risk-off’ scenario. In the following case, the SEK/EUR exchange rates strengthened between 2018 -2019 as the political risks in Europe drive the Euro much higher since there are viewed as safer as compared to the Swedish krona.

Conversely, as the worldwide economy starts recovering from the 20o7 worldwide financial crises, the SEK/EUR exchange rates weakened as the risk appetite was revived and the traders felt more positive regarding the main growth outlook. Moreover, investors have started redirecting the capital from the security oasis in the EU (core). To the riskier but high returning options in Nordics (perimeter). The relationship reflected the resurrected interest in the trading riskier and high yield assets in the less uncertain environment.

The Norwegian Krone is specifically susceptible to fluctuations in the risk appetite because of Norway’s stronger connection to the gas market. As the cycle sensitive commodity, the prices of crude oil fast response to changes in the world sentiment due to the future demand for the main input on economic growth. In this regard, NOK is largely at the mercy of similar forces, which affects the commodity.

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