Last week's downgrade of five top-listed Danish banks by Moody's Investor Services has put moderate sell pressure on the krone (DKK).
After touching its Feb. 9 low of 5.4333, the USD/DKK pushed back towards 5.5000 following the risk adjustment by Moody's.
The New York-based investor service provider downgraded Danske Bank A/S, Erhvervsbank A/S, BankNordik P/F, Spar Nord Bank A/S and Ringkjoebing Landbobank A/S after the Danish government dropped the losses suffered by the bailout of Amagerbanken A/S onto senior creditors.
Further downgrades may take place later in the month as three other top Danish banks will be up for review by Moody's in the near future. On the chopping block are Nordea Bank AB's Danish unit, Sydbank A/S and Jyske Bank A/S.
The failure of Denmark's fifth largest lender, Amagerbanken A/S, on February 6 represents the eighth bank bailout since 2008, and the first bailout since the new government ruled in favor of dropping its blanket guarantee of deposits and senior debt.
The resultant pressure on the Danish krone appears to have been expected, but took place prior to the cyclical uptick within its current consolidating pattern. The pair now appears poised to climb towards 5.5500 before meeting any resistance.
USD/DKK's Latest Uptick Part of Long-Term Consolidation Trend
On the bright side of Denmark's latest lending woes is the fact that the krone appears to be trading within a clearly defined consolidation pattern against the US dollar.
As can be seen on the chart below, the pair has been trading within a long-term downtrend since last June. The recent upsurge resisting this long-term trend, begun in early November of 2010, has pushed the pair into a consolidation pattern, with its tip at 5.5500.
The downgrade by Moody's pushed the DKK lower against the dollar, lifting the pair before it could reach the lower border of its consolidation pattern. Additional upward mobility is expected since both the Stochastic (slow) and MACD reveal fresh or impending bullish crosses.
It may be reasonable to expect the pair to climb towards 5.5500 before meeting any resistance. Whether or not it can break past that point is up for debate, however, since that price level has historically generated strong profit-taking behavior from Scandinavian currency traders.
USD/DKK - Daily Chart