USD/NOK: Krone finally bottomed out?
Fawad Razaqzada November 20, 2019 12:31 PM
The Norwegian Krone’s dire performance over the past several months has puzzled many market watchers, who argue that the Scandinavian currency is undervalued for many reasons.
The Norwegian Krone’s dire performance over the past several months has puzzled many market watchers, who argue that the Scandinavian currency is undervalued for many reasons. After all, Norway’s solid economic performance continued in the third quarter with GDP expanding 0.7 per cent. This compares favourably against other developed economies including the Eurozone, where expansion has been much weaker, and even the US, where growth has slowed down to below 2 per cent.
More to the point, the country’s central bank has been the sole hawk among dovish central banks elsewhere. The Norges Bank has raised interest rates four times in 2019, although in October it decided to keep policy unchanged at 1.5% as expected. The Bank noted then that “global uncertainty persists and interest rates abroad are very low,” but at the same time, “the weak krone may result in higher inflation ahead.” Governor Øystein Olsen said that their “current assessment of the outlook and balance of risks suggests that the policy rate will most likely remain at the present level in the coming period.” So, the Norges Bank has not exactly turned dovish. The bank’s neutral stance should help limit the downside for the krone going forward.
Meanwhile with prices of crude oil, Norway’s main export, stabilising again of late, the krone may, after all, be able to rise from the ashes in the weeks ahead, particularly if foreign central banks signal further rate cuts are on the horizon.
Source: Trading View and FOREX.com.
From a technical point of view, the USD/NOK has put in a few lower highs of late suggesting that the bears are perhaps finally beginning to exert some pressure on rates. So far, though, key support areas are still intact, so more work is needed from the bears before the tide potentially turns against the bulls. Still, today’s price action has been very interesting as the bulls’ earlier attempt at pushing rates above a short-term bearish trend failed. Although I will stop short of saying that this is the clearest sign yet that the trend is turning lower, it is nonetheless very interesting to observe. What the bears would like to see now is, first and foremost, a closing break below short-term support at 9.1350, followed by a breakdown below old lows in the region between 0.9050 to 0.9080 next. If seen, that would be a solid bearish development.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.