USDNOK: Krone Crumbling on Collapsing Crude

The recent freefall in Scandanavian currencies has been one of the most underreported stories in the FX market over the past couple of weeks. With both the Norges bank and the Riksbank swerving sharply to the dovish end of the central bank spectrum, traders have relentlessly sold both countries’ currencies. My colleague Fawad Razaqzada already touched on the Swedish Krona today, but it’s also worthwhile to catch up with Sweden’s western neighbor.

For the uninitiated, Norway is Europe's largest oil producer, as well as the world's third-largest natural gas exporter, so the performance of the Norwegian krone is closely linked to fluctuations in the price of oil. In case you’ve been living under a rock the past few weeks, oil prices have been absolutely collapsing since late June, with WTI shedding $8 to trade back below $100 and Brent losing more than $10 over the same period. While oil prices could well bounce from the current deeply oversold levels, the medium-term bias remains to the downside based on the tremendous selling pressure of late. Therefore, the correlation with oil could keep the USDNOK supported moving forward, to say nothing of the growing divergence in monetary policy between the two nations.

Technical Look: USDNOK

Looking to the daily chart of the USDNOK, the pair is edging up to approach its post-Norges-Bank peak near 6.2460. In fact, a close at current levels would represent the highest closing price in six months! Meanwhile, the 50-day MA is about to cross above the 200-day MA, creating a bullish “golden cross” signal. Finally, last week’s pullback has alleviated the short-term overbought condition in the Slow Stochastics oscillator, potentially clearing the way for further gains, though longer-term oscillators like the RSI (not shown) are still near overbought territory.

Looking ahead, bulls will be watching for a close above the 78.6% Fibonacci retracement and early July high at 6.2450 to expose the 4-year high at 6.3125 next. On the other hand, a failure to break this ceiling could lead to a short-term pullback, but rates may still find support ahead of the 6.10 level given the pair’s generally bullish technical and fundamental backdrop.

Source: FOREX.com