When the Norges Bank met on December 19th, Governor Olsen said that “inflation is close to target” and that “the policy rate will most likely remain at the current level in the coming period”. The benchmark interest rate is at 1.5% and has been there since September 2019. Tomorrow these comments will be put to the test, as the Inflation Rate and the Core Inflation Rate are to be released. Expectations are for 1.6% (vs 1.6% last) and 2.0% (vs 2.1% last), respectively. The Norges Bank is due to meet again on January 23rd.
Norway is an oil exporting country. Therefore, as the price of crude oil moves higher, so does the Norwegian Krone. (Crude oil and the USD/NOK are inversely related). When OPEC agreed to cut output in mid-December, the price of crude began to slowly rise. As such, so did the value of Krone. And with inflation in check, according to the Norges Bank, USD/NOK began to sell off.
At the time, USD/NOK was trading sideways trying to navigate its way out of a rising wedge. As price began moving lower, it started retracing the rising wedge. The target for a rising wedge is 100% of the wedge. So far, USD/NOK has retraced to the 61.8% Fibonacci level of the wedge near 8.7900 and bounced slightly 2 days ago to the 200-day moving average and horizonal resistance near 8.9000. This allowed for the RSI to unwind a bit and move from oversold conditions back into the neutral range. However, today the USD/NOK put in a shooting star candlestick formation indicating prices may be ready to resume their move lower.
Source: Tradingview, City Index
In addition to the shooting star on the daily, notice on the 60-minute chart how shallow the bounce was in USD/NOK compared to the selloff in crude futures. Since the bounce started, USD/NOK has moved from 8.7545 to 8.9034, an increase of only 1.7%.
Source: Tradingview, City Index
Compared to crude oil, from high to low over the same period (which was the really the last 2 days), the selloff from 65.65 to 58.66 was 10.6%.
Source: Tradingview, NYMEX, City Index
Therefore, if crude is to bounce and retrace some of the move lower, and the inflation data is stronger than expected, USD/NOK could resume its move lower…. and quickly!
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.