USD/NOK tumbled during the European morning

USD/NOK

The dollar was lower against all of its G10 counterparts during the European morning Wednesday, ranging from -0.3% against SEK to -1.5% vs AUD and JPY.

The Norwegian krone strengthened after the country's core inflation rate beat estimates and rose to 2.4% yoy in May from 2.1% yoy in April. The positive surprise is likely to take off some pressure from the Norges bank to lower its key policy rate at its meeting next week. We have mentioned several times that the country's fundamentals are solid, with CPI near the Bank's target, unemployment below 3% and higher oil prices recently. The only drawback that could prompt the Bank to cut rates are lower wage settlements and subdued wage growth. I would expect NOK to remain supported going into the meeting, and if the Bank remains on hold again, the currency could strengthen further.

In the UK, industrial production rose more than expected in April, and March's figure was revised up a bit. Following the narrowing of the trade deficit on Tuesday, the improved IP keeps the scenario for a rebound in Q2 growth alive. We would expect this to generate some support for sterling in the near term.

USD/NOK tumbled during the European morning Wednesday following Norway's higher-than-expected core inflation rate for May. The pair fell below the key support (now turned into resistance) territory of 7.7200 (R1) and signaled the completion of a possible double top formation on the 4-hour chart. This shifted the short-term outlook of the pair to the downside in my view. Therefore, I would expect a clear move below the support of 7.6450 (S1) to target our next hurdle area of 7.5800 (S2). Our momentum studies detect negative momentum. The RSI stands below its 50 line, slightly above its 30 barrier, while the MACD lies below both its zero and signal lines. Nevertheless, the RSI has turned up, hinting that an upside corrective bounce could be on the cards before sellers shoot again. But even if the bounce occurs, the likelihood of a lower peak is high and therefore I would not bet on a possible rebound. I prefer to wait for a move below 7.6450 (S1). Switching to the daily chart, I see that the daily oscillators corroborate my view as well. The 14-day RSI looks able to fall below its 50 line, while the daily MACD, although positive, has topped and could fall below its trigger soon. There is also negative divergence between the 14-day RSI and the price action.

• Support: 7.6450 (S1), 7.5800 (S2), 7.5000 (S3).

• Resistance: 7.7200 (R1) 7.8700 (R2), 8.0000 (R3).