Short-term Trading Idea FX USD/NOK – Bull Specualtion: Bounce from Trend Line

Trading opportunities for currency pair: In this idea I consider the technical signals – a bounce from the trend line. The USD/NOK has bounced from the line which goes from 6.1720 (22/08/14) and 7.2885 (15/05/15). The body of Friday’s candle fully covered that of Thursday. A similar situation was seen on 18/09/15. This is a bull signal (as on 18/09/15) so we need to keep an eye on the price of oil on Monday

If oil continues to fall and the dollar continues to rise then a fall in oil to $32.40 will provoke a dollar rise to 8.61. A fall of oil to $30.90/80 will see the rate head to 8.7200. Growth is to be cancelled out with a close of the daily candle below 8.4420.

Background

The last trading idea I made on USD/NOK came out on 12th October, 2015. At its publication, the price was at 8.0832. A spike had formed on the daily. The fall of the dollar stopped around a strong support. I expected to see a bounce of the price from the 8.0400-8.0650 support zone to 8.1895 and 8.32. In the end, the price rebounded and the targets were reached.

Current situation

The krona lost 18.29% against the dollar or 13,687 points throughout 2015 to fall to 8.8520. The Norwegian fell victim to oil price wars. Brent lost 33.60% to $37.71. The NOK rate fell less than oil since Norway had created an oil fund to patch up holes in their budget. There is now 807.66 billion USD in this fund. The fund also serves as an instrument to manage financial problems with regards to the country’s ageing population.

The state oil fund was created in 1990. The first tranche of it came from the government in 1996. The owner of the fund is the finance ministry, but the Norges Bank Investment Management manages the fund. In 2006 the state oil fund was renamed as the Government Pension Fund Global.

Since the start of the year, the NOK has gained 3.3% to 8.5596 on the dollar. A fall in the dollar against the krona was caused by a general market correction after a series of weak macroeconomic indicators from the US and a rebound of Brent from $27.08.

The NFP on Friday 5th February came out worse than expected. Job creation in the US non-agricultural sector for January increased by 151k (forecasted 190k) November’s NFP was reassessed for the second time to be up from 252k to 280k. It was reassessed the first time from 211k to 240k. This makes a difference of 12k. December’s value was also reassessed: downwards from 292k to 262k. Taking all the reassessments into account we have a 2k fall compared with original values.

US unemployment in January was down 0.1% to 4.9%. The index for average hourly wages was up 0.5% (forecasted: 0.3%, previous: 0.0%). The involvement of the population in the labour force was up by 0.1% to 62.7%. These indicators were used by traders to close dollar long positions.

Later on we had the weekly Baker Hughes oil report which didn’t really allow oil quotes to fall sharply. According to the data, extraction rigs in the US for the week ending 5th February were down 48 to 571. This is a 885 fall YoY. The number of oil extraction rigs fell by 31 to 467. The rigs for oil reduced by 17 to 104.

What’s interesting at the moment?

Oil prices are slightly down after the US labour market report. The dollar was up throughout the market before the weekend. Take note: the USD/NOK bounced from the trend line from 6.1720 (22/08/14) and 7.2885 (15/05/15). The body of Friday’s candle fully covered that of Thursday. A similar situation was seen on 18/09/15. This is a bull signal so we need to keep an eye on the price of oil on Monday.

My intermarket analysis is contradictory. If Brent rises to $35.80-36.00 on Monday, we can forget about a growth in the USD/NOK. In this case, the price will return to 8.50 and will close Friday’s candle. If it turns out like this then we should expect to see a break in the trend line because a rise of Brent to $36.20 will open up a $39 target. This level will be reached very quickly with protective stops flying off. A weakening of the dollar will mean we can target 8.1850.

If oil continues to fall and the dollar continues to rise, then a fall in oil to $32.40 will provoke a dollar rise to 8.61. A fall of oil to $30.90/80 will see the rate head to 8.7200.

According to the COT (Commitments of Traders) presented to the CFTC (Commodities Futures Trading Committee), the oil market situation is 50/50.

Big speculators (NON-COMMERCIAL) increased their gross oil buy positions for last week by 5.1k to 257.4k just by increasing their long positions. They increased long positions by 36.1k to 579.2k contracts. It’s worth mentioning that the growth in oil prices led the big players to open 30.9k short positions. These short positions now total 321.8k contracts. Many traders believed in the end of the correction, although the buyers’ were only holding slightly more weight last week.

The Non-reportable Positions of the small fries showed an opening of long positions 6.8 times more than that of shorts. After the Russian energy minister managed to up oil prices to $36, many traders started to believe in further growth.

They increased long positions by 6,331 to 109,800 last week. Shorts were up by 3,600 to 97,200. Gross long positions stood at 12,600 against last week’s 7,200.