Tuesday, February 18, 2014

Norwegian Krone and political comments | Can the US dollar recover its mojo?

The US dollar / Norwegian Krone pair has just broken through a significant support level, which just might be the harbinger of a stronger Norwegian currency. It had been weaker than normal, which came as a pleasant surprise to Norwegian manufacturing and tourist interests, as the currency has traditionally been very strong indeed. This is a consequence of Norway’s oil reserves and the hangover from the Global Financial Crisis on the rest of the global economy.

The recent weakness has been hard for economists to explain. One theory is that, when the new Conservative government presented its first budget in November of last year, comments made by the Prime Minister, Erna Solberg, were interpreted as meaning that the new government intended to weaken the currency and the market reacted accordingly. There is now a feeling that Ms. Solberg’s comments might have been misinterpreted.

The pair oscillated since the weakening that took place after the comments were made and during the last week of January 2014 there was something of an exhaustion surge, after which the pair started to decline. It has been doing so ever since. Now, as mentioned, it has breached the support level that was established during the oscillation phase, at 6.06206 to the US dollar.

We have opened a short position in USDNOK on the basis of the above. So far it is behaving as we expected it would.

US dollar weakness

All currency pairs containing the US dollar are awaiting US dollar strength, or rather the traders who take an interest in these pairs are, in order to continue about their business. Typical of this situation are the two precious metals, silver and gold. The charts above show the silver spot market contract (XAGUSD), which has made a triple top on the hourly chart, and the gold spot market contract (XAUUSD), which could be about to make a lower low to add to its recent lower high.

Both of these Technical Analysis signals are bearish. The big question is whether or not the market will get completion on them. It all depends on whether or not the greenback recovers its mojo in the near future. One catalyst for this could be the minutes of the last FOMC meeting, which are due for release later today. Comments from the committee members that would serve to allay the fears surrounding the US economy that have surfaced since the start of the year might be just what are required.

Minutes of the Bank of England Monetary Policy Committee (MPC) are also due today, but may not have the same impact as those of its counterpart in the USA.

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