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Krone Rapidly Gains Against Greenback; USDNOK Outlook

by on February 25, 2014 9:23 am BST
 

 

The Norwegian Krone continues to rapidly strengthen, particularly against the greenback, as the economy shows signs of slowing. Prime Minister Erna Solberg aims to implement policies to prevent further strengthening and keep the economy, highly dependent on oil, gas and shipping, competitive.

There are no plans to seek foreign-exchange intervention to weaken the krone, but the focus will be gear towards reforms to stay economically competitive. “We will of course have to make sure that our fiscal policies don’t strengthen the krone,” said Solberg.

The krone has been appreciating since 2011, after Norway seen an influx in investor capital and multiple rate cuts. In order to stop inflation from increasing above the central bank’s 2.5 percent target, the central bank was looking to cut its benchmark rate again; but, in December, it was decided to leave it at 1.5 percent.

Norway, along with other Scandinavian countries, has enormous consumer debt loads, which has been weighing on the economy. The five-year housing rally lost steam and began to reverse. In 2013, Norway saw an expansion of growth by only two percent, lower than the 3.4 percent seen in the previous year.

The krone has strengthened considerably against the greenback as the USDNOK fell from a three-year high of 6.3126 on February 4 to 6.0133 in early London trading.

The key moving averages are beginning to slop downward, signaling a continuation of the current trend. The 20 EMA has crossed the 50 and 72 EMA to complete a bearish crossover, and the – DMI is ticking upward. The ADX is sloping upwards and indicating that the trend’s strength is stable.

Price action is currently pressuring the 200 EMA and price action support at 6.0116. A close below support will send the USDNOK lower through six krone per dollar. The next level of support is found at 5.9829 with a downside target of 5.9507.

The krone pairs are rather volatile, and USDNOK can fluctuate a few hundred pips in a session. A pullback can be seen reaching 6.0582 and additional resistance at 6.0958.

1D Chart of USDNOK

1D Chart of USDNOK