As the Norwegian Krone waits for possible action from the Norges Bank, it is receiving a strong push from rising crude oil prices. This presents an opportunity to trade a currency pair which at the moment, presents divergent fundamentals.
The EUR/NOK is in a short-term downtrend, as the weakening Euro capitulates to pressure from a resurgent Krone, buoyed by last week’s OPEC + decision to roll over the previous production curbs until April. The decision proved to be an outcome that was better than the markets expected. This is expected to pinch global supply a bit more, which provides an avenue for crude oil prices to rise in the short and medium-term.
The European Central Bank (ECB) meets on Thursday and is expected to double down on the maintenance of the PEPP. This comes as several ECB board members insist that temptations to slacken the PEPP should be resisted, as unwarranted tightening at the moment could be detrimental to the EU economy. Tuesday’s EU GDP figure came in at -0.7%, which was worse than the -0.6% the markets expected. This figure also represents a contraction from the -0.6% registered previously and makes a strong case for the ECB to consolidate on the PEPP, thus weakening the Euro further.
Technical Levels to Watch
Any retracement rallies would occur within the context of the descending channel on the daily chart of the EUR/NOK. This move would target 10.20324 with additional potential to hit 10.29497, 10.44506 or 10.44923/10.49092. The latter is a strong resistance and only a break of this price level changes the sentiment on the EUR/NOK. This is not a likely outcome in the short term.
On the other hand, bears would be looking for opportunities to sell on rallies to any of the aforementioned resistance levels, ultimately targeting targets below the 10 NOK mark at 9.89889 and 9.83219 respectively. For these targets to be achieved, 10.01146 and the channel’s lower border must be taken out.