Norges Bank stands tall and raises rates.
It was expected, they delivered. But they delivered much more than just a 25 bps expected rate hike from 0.75% to 1%. They steepened the rate path by bringing forward the next expected rate hike from Q3 2019 to June and raising the expect level of where they expect rates to be in 2020 to 1.6 from 1.4%.
And if that were not enough, a few hours later Norges bank gov Olsen delivered a hawkish interview on Bloomberg. He wasn’t worried at all for NOK to strengthen a bit more.
That deserves some reflection. Not in the least because myself and a few others in our trading room are Long NOK for a good while already. Who else is going to talk our book if we’re not he? The most heavily invested cross is EURNOK in our room, with a touch of USDNOK and a splash of sporadic other victims like JPY for instance.
The most actively traded in the market then: EURNOK.We’ve been hanging around in a pretty nervous range at times between 9.65 and 9.80’s lately. Two weeks ago we even did the high of the year despite higher oil prices and already warnings from Norges Bank they could hike sooner, rather than later. Finally this week did we see some form of expectation NOK purchases but nothing that may tell us the market really believed in it. That must be due to “trade” uncertainties imo and the relative small size of NOK in money managers’ books.
But today things may have changed a bit. At 1%, there’s not much real meat on the bone but in pussy CB land where they all shy away from even thinking of hiking, where one has to pay to be long EUR, JPY or CHF and even SEK, NOK should continue to do well and attract funds, for as long as oil continues to do relatively well. Olsen mentioned oil as a driver, so we need to pay attention to this.
Techs tell us we are OK being short EURNOK. Most of us did take some profit on shorts just above the intermediate fib extension in the 9.59s but the dailies paint a solid bearish pictures as we close the day. We broke and held sub 9.73=50% fib of the Oct-Dec ’18 rally earlier this week and today through the 61.8%, a longer term trend line, the 200DMA and the H&S neckline, all in the 9.64-9.66 zone. What to ask more for. It’s a serious enough break, supported by Norges Bank’s hawkish rhetoric. A retest and confirmation of the break of the zone would be nice but I reckon we’re good enough for more downside.
I could see 9.57-54 as the next station, but to me we’re on our way to 9.40/41 and if the H&S formation would play out in full, the measured move is around 9.25. Too far I hear you thinking? Don’t forget it’s NOK, not EUR or JPY. Liquidity matters. If investors come into the market, 4% had been seen and done often enough.
When the techs support the fundamentals and vice versa, a lot is possible.
if things wouldn’t pan out as expected, oil crashing, Olsen saying we dreamt everything he said and what they decided today, I would abandon ship back through the 50% fib in the 9.73s. I’m half a position short now, looking to add 9.64/65. If 9.5930 goes, I’ll be adding into the momentum too.
Safe travels and happy hunting.