During the last months the pair USDNOK has been traded in the flat with low boundary 8,7 and upper boundary near 9. The last week a low flat breakdown had been fixed, and the local minimum had been set in the level 8,545. However, yesterday the decline had been stopped, and USDNOK had shoot up in the former flat boundaries. What’s going to happen next?
The Norwegian currency doesn’t show the obvious weakness in relation to a dollar unlike the other ones. The reasons are clear: being the one of the largest oil’s exporters, Norway receives the enormous income with the oil prices rising to multiyear maximums. And it seems like the superfluous strength of national currency begins to hinder Norges Bank during the pursuit of monetary policy.
On March 31, Norges Bank had announced that it would buy foreign currency for 2 billion krones in April. The sale of the krone against other currencies will be held for the first time in 9 years. In such a way the foreign currency revenue can be exchanged for more Norwegian currency to cover the government budget deficit. If April sales are not enough, they can be extended to the following months.
USA had decided to start the daily sales of oil from the strategic petroleum reserve in the coming 6 months, and it had put the additional pressure on the krone. The emotional reaction had caused the fall of oil prices putting pressure on the Norwegian currency. Although the decision to release 180 million barrels from reserves doesn’t contribute to balancing the oil market in the long term, it may continue to exert significant pressure on oil in the short term.
Technically, the yesterday’s sudden buying the dip of USDNOK had contributed to the formation of a “bullish engulfing” on the chart, and today the upward reversal has been confirmed. The nearest growth’s target will be the level of 8.86, further the movement to the level of 9 is possible.
The following trading strategy options can be suggested:
1) Buy USDNOK after the rollback to 8,7. Take profit 1 – 8,86. Take profit 2 – 9. Stop loss – 8,63.
2) Buy USDNOK within the range of 8,75-8,8. Take profit – 9. Stop loss – 8,6.
Also, instead of a fixed Stop loss, the traders can use Trailing stop at their discretion, when the price moves up.