You take the high road, I'll take the low road.
The NOK case
The Norwegian Krone is doing rather well at the moment. It has been on a stellar run as the Central Bank raised their rates yesterday (expected) and saw reason to extend rates further (unexpected). Here are some factors I raised here a couple of days ago. The Bank Governor now sees an above 50% chance of another rate hike in June and the path of rate hikes is now more bullish than before the meeting.
- 2019 rate level at 1.1% vs December 1.0% forecast
- 2020 rate level at 1.6% vs December 1.5% forecast
- 2021 rate level at 1.7% vs December 1.8% forecast
NOK was bought instantly on the statement. Here it is:
So, bullish NOK.
The USD case
In contrast, the Fed was more bearish than expected and very patient in its outlook, pushing out all chance of a rate hike in 2019 and raising questions about the domestic economy. Key points were:
- dot plots showing median forecast is for no hikes in 2019 and one in 2020
- Fed saw weaker near term growth and tamer inflation
- Powell said it could be some time before the outlook calls for a change in policy
A final point
The key thing we want to do as traders, to get a settled direction on a trade, is to pair up weak currencies with strong ones and a diverging central bank is the perfect way to do it. Look at the USDNOK chart for technical places to enter short. Price is now hovering around the daily 100EMA and price looks set to break it today.
