The Norwegian Krone is extending last week’s gains against the US Dollar, hitting a 1-year peak versus the greenback as crude oil prices edged higher today on the back of additional stimulus support and increasing risk appetite.
New global stimulus measures spurred risk appetite in stocks and risky commodities, enabling crude oil prices on the Brent crude benchmark to surge 0.7% higher on the day. Volumes were however light on both crude oil and the USDNOK, as the last day of the month signals a balancing of portfolios and books among traders worldwide.
The inflation target adjustment by the Federal Reserve on Wednesday last week has since come off as a dovish action, as the new “moderate overshoot” policy could allow the Fed to stay action longer on any interest rate increases even if the inflation rate exceeds the 2% average target by up to 25 – 50 bps, if the interpretation of the Dallas Fed Reserve Bank President Robert Kaplan is anything to go by. This move could further weaken the greenback against a basket of currencies, and the Norwegian Krone could see some benefit here.
The USDNOK currently trades at 8.76723, having touched off an intraday low of 8.74428 to mark the lowest price it has attained in more than a year.
Technical Outlook for USDNOK
The drivers for the USDNOK continue to be crude oil prices and the sentiment around the US Dollar. Both factors presently favour continued downside on the USDNOK, even as the pair is seen breaching the ascending support trendline that connects multi-year lows at September/October 2018, July/December 2019 and July 2020. The initial breakdown was followed by a pullback to the broken trendline, after which last week’s rejection and follow-through selling confirmed the breakdown of this trendline.
Price is now challenging support at 8.80393. A breakdown of this area has to confirmed by a 3% penetration close below the support line by a weekly candle. This opens the door towards 8.49596 (78.6% Fibonacci retracement from the swing low of Jan 2018 to the swing high of March 2020. Below this level, further support could be seen at 8.18807 (August 2016 and January 2017 lows).
On the flip side, failure to break down the support at 8.80393 allows for a bounce towards 9.22531, with 9.48835 also lining up as a potential upside target. These moves would require price to push through the ascending trendline, which now acts as a resistance in role reversal.