USD/NOK hit resistance at 8.3300 (R1) on Friday and tumbled

USD/NOK

• The dollar traded mixed against its G10 peers during the European morning Monday, in the absence of any major market moving event. It was higher against NZD, AUD, JPY and CAD, in that order, while it was lower vs NOK, CHF and SEK. The greenback was virtually unchanged against GBP and EUR.

• The Norwegian krone plunged after the country's headline CPI rose only 1.8% yoy in July, a sharp deceleration from +2.6% yoy previously, below expectations of +1.9% yoy and back below the Norges Bank's 2.5% target. It immediately recovered however and gained a bit, as the underlying rate came in line with market consensus of 2.6%. The mixed inflation outlook is not much of a help for the Norges Bank ahead of September's policy meeting. However, the soft inflation data in July and the recent lower oil prices could force the Norges bank to ease further at the next meeting. As such, I would treat any USD/NOK setback as renewed buying opportunity.

• USD/NOK hit resistance at 8.3300 (R1) on Friday and tumbled. Today during the early European morning, the rate continued its slide and looks to be headed towards the support territory of 8.2200 (S1). Although the near-term trend remains positive, looking at our short-term oscillators, I see signs that further setback could be on the cards. The RSI fell below its 50 line and is now pointing down, while the MACD, although positive, stands below its trigger line and points south as well. What is more, there is negative divergence between both these indicators and the price action. A break below 8.2200 (S1) is likely to confirm the case of further pullback and perhaps target the 8.1760 (S2) barrier, marked by the low of the 4th of August. On the daily chart, the major path remains an uptrend. Therefore I would consider any minor-term declines as providing renewed buying opportunities. A break above 8.3300 (R1) would confirm a forthcoming higher high and perhaps target the 8.4000 (R2) zone, defined by the peaks of the 18th and 19th of March.

• Support: 8.2200 (S1), 8.1760 (S2), 8.0900 (S3)

• Resistance: 8.3300 (R1), 8.4000 (R2), 8.5000 (R3)