EURNOK Trade Idea

EURNOK has been moving in a one way direction upwards since April. The ECB’s hawkish pivot, a declining and range bound oil price as well as the euro’s more defensive nature during the global equity sell-off applied upside pressure for EURNOK. Norwegian inflation is robust and the weaker currency will only add to price pressures, which should see the Norges Bank implement additional rate hikes. I do believe the Norges Bank will out-deliver the ECB in terms of policy tightening given weaker eurozone growth prospects and concerns around a blowout of peripheral spreads such as the BTP-Bund spread (already at 200bps). This would widen the yield differential between NOK and EUR in NOK’s favour for carry traders. Another factor which could work against the single currency is the small net long speculative positioning, which provides ammunition for a potential souring of sentiment and shorts to build up from speculators. The problem for the krone is the uncertain and precarious risk backdrop currently prevailing in markets. If equity markets continue their decline, this could prevent the nokkie from appreciating drastically.

(Source: Tradingview - Past performance is not indicative of future performance.)

Technically, EURNOK is flashing overbought on the %above/below the 50-day SMA indicator as well as the RSI. In fact, there is also some negative divergence on the RSI which is showing. Price got up to the range resistance at 10.40 and then sellers punished price lower. Traders could think about shorts with stops above 10.50 as that for me would invalidate the trade. Potential targets could reside around the mid-point of the range (10.20) or the 200-day SMA at just below 10 and between the 38.2% and 50% Fibonacci level.