By Greg Holden – The pressure being placed on Ireland to accept a bailout of its financial institutions has been weighing on risk appetite throughout the region. Traders appear weary of taking on too much risk, which has pulled funds away from the higher yielding assets. One result has been a weakening Norwegian krone (NOK).
Norway’s central bank remarked on October 26 that it would be waiting until mid-2011 to continue its monetary tightening policies. The dovish statement made clear that Norway was awaiting further recovery in other economies before attempting to expand more aggressively. As a result, the NOK has become vulnerable to risk aversion, which appears to have spiked in recent weeks.
Meanwhile, Sweden’s krona (SEK) is expected to gain from this influx of risk aversion. Analysts are forecasting a rise in capital inflows over the next few months for Sweden as its hawkish bank statements and monetary tightening appear to increase its appeal. The SEK has, in fact, been the second highest performing currency in 2010, only slightly behind the Australian dollar.
USD/NOK Breaches Resistance at 5.9825
The current price of the USD/NOK around the 5.9965 level shows a price which has recently breached the significant 38.2% Fibonacci retracement line. On the chart below, we can see that the MACD and RSI both show additional room for upward mobility since neither has yet entered their respective over-bought regions.
As with the above analysis, if pressure continues to mount throughout Europe due to Irish debt concerns, risk aversion will likely continue to loom large. With the current stance of Norgesbank, the NOK is open to downward pressure from the fundamental side. We can also see that the pair has yet to meet any significant resistance on the technical side, and appears to have the momentum to continue towards 6.1500, indicated by the 50% Fibonacci retracement line.
USD/NOK – Daily Chart
Forex Market Analysis provided by ForexYard.
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