USD/NOK moved higher during the European morning

USD/NOK

• The dollar traded unchanged or higher against its G10 counterparts during the European morning Wednesday, ahead of today’s FOMC minutes. It was higher against NZD, SEK, AUD and EUR, in that order, while it was stable vs GBP, CAD, JPY, CHF and NOK.

• The Norwegian krone reversed losses against the dollar after the mainland GDP, which excludes oil and gas extraction, expanded 0.5% qoq in Q1 from +0.4% qoq in Q4, exceeding expectations of +0.3% qoq. The total GDP grew 0.2% qoq in Q1, at a slower pace from +0.9% qoq in Q4. The better-than-expected mainland growth rate pushed USD/NOK down approximately 0.80% on the news, reversing earlier gains caused mainly by a firmer dollar and lower oil prices. The solid growth figures could take off some pressure from the Norges Bank to cut rates at its June meeting, thus NOK could strengthen somewhat going into the meeting. Nevertheless, positive data surprises will be required to keep NOK supported and if the upcoming data are as disappointing as the inflation rate last week, USD/NOK could strengthen.

• The minutes of the May Bank of England meeting showed that the MPC voted unanimously to keep rates unchanged, and again the decision for two members was “finely balanced”. While there was a range of views over the most likely future path for the rate, all members agreed that it was more likely than not that it would rise over the 3-year forecast period. GBP strengthened on views that the slack in the economy could be fully absorbed within a year, which could put upward pressure on the CPI and increase the possibility of a rate hike early next year.

• USD/NOK moved higher during the European morning Wednesday, but hit resistance fractionally above the key hurdle of 7.5800 (R1) after the better-than-expected mainland GDP from Norway and retreated to give back a large portion of its gains. The rate has been oscillating between that resistance and the strong support zone of 7.3000 (S3) since the 6th of May. Therefore, I would consider the short-term trend to be sideways. Given our proximity to the upper bound of the range, I would expect the forthcoming wave to be negative. A clear move below 7.4960 (S1) is likely to confirm that and perhaps challenge initially the next support at 7.4000 (S2). Our momentum studies support the occurrence of that scenario as well. The RSI found solid resistance at its 70 line, while the MACD shows signs that it could start topping. In the bigger picture, the rate is still trading below the prior longer-term uptrend line (light blue line), something that keeps the overall outlook somewhat negative. However, the latest rebound from the 7.3000 (S3) area came when that zone coincided with the 200-day moving average. As a result, I would prefer to see a clear and decisive close below 7.3000 (S3) before I trust the medium-term downtrend again.

• Support: 7.4960 (S1), 7.4000 (S2), 7.3000 (S3)

• Resistance: 7.5800 (R1), 7.6645 (R2), 7.7570 (R3)