EUR/NOK price analysis: Will the pair break below key 10.00?
16:22, 8 December 2021
The Norwegian krone (NOK) was among the top performing major currencies since the start of the week owing to rising oil prices and improving risk appetite among investors, as concerns over the Covid-19 Omicron variant receded.
After reaching the 10.40 level (the highest in three months) on 3 December, EUR/NOK has fallen back to 10.07, losing about 3% in the last three sessions.
From a fundamental standpoint, recent NOK gains have been bolstered by a recovery in Brent crude prices following the Omicron’s selloff and by anticipations of a Norges Bank rate hike.
Technically, the EUR/NOK pair has been trading in a descending channel since September 2020 and has recently crossed above the 200-day simple moving average (SMA). The next support zone is 10.00–10.02, which could be tested if risk appetite remains intact. A breach of this psychological level might enhance the likelihood of leading the pair in the 9.80–9.85 range, while a bounce off the support could potentially offer additional momentum for retesting 1.10.
EUR/NOK candlestick chart (1-week timeframe): descending channel and supports – Credit: Capital.comEUR/NOK fundamental analysis
The Norwegian krone (NOK) is a commodity-linked and risk-averse currency that is strongly correlated with oil prices, as petroleum products account for more than half of Norway's exports.
Other things being equal, the EUR/NOK currency pair tends to depreciate when oil prices rise and vice versa.
Brent crude has declined to $75 from $83 since the beginning of November, reaching a relative low of $65, as concerns over the novel Omicron variant have dimmed the outlook for crude oil consumption. EUR/NOK subsequently gained momentum, climbing from 9.71 to 10.07 before hitting a relative high at 10.37.
Another factor impacting the EUR/NOK currency pair is the European Central Bank's (ECB) and Norges Bank's differing stages of monetary policy normalisation. While the Norges Bank predicted in November that policy rates would need to be raised soon to combat Norway's rising inflation, the ECB remains stuck in an ultra-accommodative monetary policy stance and is expected to deliver its first interest-rate hike only in 2023.
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Correlation between Brent and EUR/NOK (inverted)
Correlation between Brent and EUR/NOK (inverted) EUR/NOK technical analysis
Since September 2020, EUR/NOK has been trading within a bearish channel.
The year's low was reached at 9.57 in late October (the lowest level since July 2019), and the pair has since climbed back up the channel to the current 10.07 level.
On the daily chart, EUR/NOK has just crossed the 200-day SMA, and is now trading 1.8% above the 50-day SMA and about 5% above its year-to-date highs.
The relative strength index (RSI) has fallen to 47 from the overbought zone as recent sessions were marked by the pair's strong weakening.
The psychological price of 10.00 serves as the first level of support in the near term. If this level is breached, along with a 50-day SMA crossing, bears may find new momentum to look at the 9.80 region and then at 9.60. If the pair fails to break 10.00 and bounces off support, the likelihood of a retest of the 1.10 level might increase.
EUR/NOK candlestick chart (1-day timeframe): descending channel and supports – Credit: Capital.comBefore investing in any asset, always do your own research or contact your financial adviser before arriving at a decision. Remember that your decision should be based on your attitude to risk, your expertise in this market, the spread of your portfolio and how comfortable you feel about losing money. Never invest more than you can afford to lose and keep in mind that past performance is no guarantee of future returns.