Scandi Daily 03.05
OVERVIEW – Although the Norwegian Krone has been an attractive play in the currency markets over the past several months, it appears as though we may have reached an inflection point, with the single currency more recently showing some relative weakness. Indeed, the Norges Bank was the first major central bank in the world to reverse its monetary policy cycle, but a nasty combination of disappointing fourth quarter growth, a slowdown in retail sales, a decline in oil investments, pressures on neighboring trading partners, and a central bank that has grown noticeably uncomfortable with the appreciation of its currency, have all contributed to the recent slide. As a result, many analysts are now projecting a less hawkish Norges Bank going forward, with the central bank more likely to pause and adopt a wait and see approach. In our opinion, this would be the right approach, with the state of the global economy still very much in question. This could result in some material NOK selling over the medium-term against many of the major currencies.
Eur/Sek Finally showing signs of basing with the daily RSI in the process turning up from oversold levels. Monday’s bullish outside day reaffirms outlook and likely signals a yearly low by 9.67, ahead of additional upside over the coming days back towards the 9.85 area initially. Only back under 9.67 delays.
Eur/Nok While daily studies are not as overdone as in Eur/Sek, we contend that a meaningful low has also been put in by the 8 handle, with recent price action confirming bias. From here, look for some renewed strength back towards the recent range highs at 8.26 over the coming days.
Usd/Sek Our view is highly constructive at current levels and favors continued USD appreciation over the coming weeks. We contend the market is attempting to carve out a major base rather than in the process of some bearish consolidation. Any setbacks are expected to be well supported by 7.00, with a higher low sought out ahead of the next major upside extension towards 7.50-75 over the medium-term.
Usd/Nok Has managed to recently clear the multi-week range highs by 5.90 and we believe this now opens some fresh medium-term upside over the coming weeks. Look for a higher low to now carve out by 5.80 in favor of a bullish resumption back above 6.05 over the coming days.
Gbp/Nok The market has now traded back down to retest the major base by 8.80 from October 2009 but has failed to break below this strong support. With daily studies now oversold, we would recommend that traders look to build a fresh long position at current levels in anticipation of some major upside over the coming days. Stops should be placed on a close basis below 8.80.
Nok/Jpy Has been well confined to a very choppy range trade over the past several weeks, largely defined between 15.00 and 16.50. Rallies have once again been well propped in the 15.00 area ahead of the latest minor bounce, and we continue to recommend playing the range.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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