The ECB is not the only central bank in town this week, Norway’s Norges Bank is also holding its meeting on Thursday and will announce its latest decision at 0900 BST/ 0400 ET. This is the second meeting of the year, the first one was 27th March.
At that meeting in March the Norges Bank kept rates on hold, and forecast the next rate rise to take place in summer 2015. This forecast is unlikely to change on Thursday since only 5 weeks have passed since that decision; however, the recent strength of the economic data could put the Norges Bank in a tight spot. For example:
- House prices jumped to a record high for April.
- The April unemployment rate fell to 2.8%, the lowest level of the year so far.
- Industrial production surprised on the upside.
- Retail sales expanded at their fastest rate for nearly a year.
- CPI has continued to moderate and remains around the 2% mark.
While the fundamental picture strengthens, the moderation in price pressures may have taken the pressure off the Norges Bank to act at this meeting. The Bank is also wary of NOK appreciation, especially since lower rates in Sweden has helped NOK/SEK to rise more than 6% since February. Thus, the Bank may err on the side of caution at this meeting and avoid the prospect of rate increases.
However, if the data continues in this current trajectory then the Norges Bank may choose to revise the rate path higher at its June meeting, thus it is worth watching Norges Bank President Olsen’s press conference closely on Thursday in case he lets slip any prospect of a change to the rate path forecast in the coming months.
Overall, the Norges Bank has a difficult balancing act at this meeting. While it may desire to err on the side of caution and refrain from pointing to higher rates in the future to limit NOK upside, if the data remains in this vein then the market could start to price in higher rates anyway. Thus, the next 24 hours could be crucial for the NOK.
One to watch: EUR/NOK
It is the battle of the central banks for the EUR/NOK pair this week. Will the Norges Bank or the ECB be the most successful at talking down their currency? From a technical perspective, this cross is approaching a significant level of support, the 200-day sma comes in at 8.2188. We are already below the daily Ichimoku cloud, so a daily close below the 200-day sma could enhance the selling pressure on this pair. Key support levels to watch include:
- 8.2168 – the low from 16th April
- 8.20254 – the low from 4th April
Takeaway:
• The Norges Bank along with the ECB both hold meetings on Thursday, which could keep EURNOK interesting over the next 24 hours.
• The Norges Bank is expected to remain on hold, although the better tone to economic data could cause the Bank to revise higher its rate forecast, although we think this is more likely at next month’s meeting.
• Thus, the Norges Bank may find it more difficult to spin its decision in a dovish light compared with the ECB, in our view.
• EURNOK is testing a crucial area of support, if we fall below the 200-day sma at 8.2188 this could trigger a further wave of selling.
On the upside, a surprisingly hawkish statement from ECB President Draghi, or a dovish statement from the Norges Bank could see this pair stage a mini-recovery. Key short term resistance levels include:
- 8.2603 – the high from Wednesday.
- 8.2742 – the high from 5th May.
