EUR/NOK Hits Fresh 2014 Low

Norway’s Norges Bank kept rates on hold today and did not alter its forecast for interest rates, as expected by the market. Norges Bank Governor Olsen said there had been no change in the rate outlook since the March meeting, and the first rate hike is still forecast for mid-2015.

However, if the economic data continues in its strong vein then we think that the Bank could be forced to bring its rate forecast forward at its next meeting in June. Governor Olsen did mention that low rates abroad would be a consideration regarding the timing of the next rate hike by the Norges Bank, but if the ECB stays on hold today and the BOE starts to discuss the possibility of a rate hike at next week’s Inflation Report then this could make it harder for the Norges Bank to sit back and do nothing in the face of strong growth.

This may be one reason why the NOK appreciated against its G10 peers after the announcement today; it is the second best performing currency in the G10 behind the Australian dollar. We mentioned that EUR/NOK was testing a critical support level ahead of the meeting at 8.2200 – the 200-day sma. After the meeting, this cross fell below this key support level and continues to look weak as we lead up to the ECB meeting.

Looking ahead, the immediate outlook for the NOK could be determined by the ECB meeting later today. If the Bank does nothing then this could trigger a recovery in EUR/NOK, while a surprise move to loosen monetary policy could see another leg lower.

From a technical perspective, this cross fell to a low of 8.1783, the lowest level of the year so far. This is the lowest level since November 2013 and opens the way to the 50-week moving average at 8.1496. The 200-day sma is now key resistance.

NOK/SEK is also worth watching today. It is approaching 1.1059 resistance – the April 17th high. A daily close above this level is a bullish development that could open the way to 1.1111 – the high from 13th September last year.

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