When the USD does well, the NOK struggles – Nordea

The Norwegian krone strengthened last week due to higher oil prices and an improved risk sentiment. Economists at Nordea remain cautiously positive to NOK in general, but at 10.25 they do not see much downside for EUR/NOK in the short-term. They also see very little downside in USD/NOK.

Strong NFP could lead to a stronger USD and a weaker NOK

“From a technical standpoint, there is limited downside in the short-term for both EUR/NOK and USD/NOK. The Relative Strength Index for both crosses stands below 40 – suggesting limited downside. Moreover, EUR/NOK is trading below its 200-day moving average which is usually a solid support level. Next level to watch is the 100-day moving average around 10.23. For USD/NOK, the 200-day moving average stands at 8.56.”

“This week, key to watch is the US Nonfarm Payrolls job report. After close to 1 million new job additions in both June and July, consensus is for 750K new jobs during August. A positive surprise could give rise to a stronger USD and thereby a somewhat higher USD/NOK.”

“Looking a bit further out towards year-end, different events will affect the NOK. The good: Norges Bank is set to increase rates in September and December. This should give some support to NOK. The bad: We still believe the FED will signal a gradual normalization of monetary policy (tapering of QE) later in September if the US labour market continues to improve. A more hawkish FED should lead to a stronger USD. The (potentially) ugly: A faster-than-expected tapering and higher long-term rates in the US could be bad news for stock markets, giving rise to a weaker NOK as NOK is extremely sensitive to shifts in risk sentiment. On the other hand, the USD usually strengthens during periods of market turbulence. A stronger USD usually has a negative effect on the oil price – something that could also have an adverse effect on the NOK.”