Tomorrow the Norges Bank will release its key policy rate decision and Monetary Policy Report. Expectations are for the Norwegian central bank to hold rates steady but to signal its intention to continue on its current path of monetary policy tightening in the future which would be a catalyst for the Norwegian krona.
Consensus estimates are for the Norwegian central bank to remain on hold in its current cycle of rate tightening while most expectations are for an additional interest rate increase in the near term. The current rate stands at 2.25%. However, according to most economists’ forecasts the timing for the next 25 bps interest rake hike could come sometime between August and October.
An increase to the Norwegian interest rate will be needed as unemployment in Norway has dropped to 3.3%. Norway has an unemployment rate most industrialized nations can only dream of but the strong macroeconomic fundamentals may spill over into future inflationary pressures as rising wages could feed into further price increases.
While the Norges bank continues to raise rates following its first increase in May, this may keep the NOK well bid versus the majority of G7 currencies that are striving to maintain interest rates at record low levels in order to aid their economic recoveries, particularly in the US. Given the Greek debt crisis is coming to a head, this may present an opportunity in the EUR/NOK.
Turning to the charts, the EUR/NOK is encroaching on resistance at 7.950-80, a level the pair has not traded above since early December. Significant support comes in at 7.7850 and 7.7165. These defined support and resistance levels may offer traders an opportunity to short the EUR/NOK with a strong profit to risk ratio of at least 3:1.
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