Owning optionality in EURNOK over key event risks Owning optionality in EURNOK over key event risks Owning optionality in EURNOK over key event risks

Owning optionality in EURNOK over key event risks

Forex Options 4 minutes to read
John Hardy

Head of FX Strategy

Summary:  Is NOK ready to break out of range?

Next week we have a possibly pivotal FOMC meeting on Wednesday and a Norges Bank meeting the following day, with the former critical for all asset classes and currencies while the latter could see NOK finally breaking out of its tight range.

It’s impossible to know whether the Federal Reserve is willing to deliver on expectations for a rate cut next week – few are expecting a cut but given the expectations for a number of cuts by year end, some dovish forward guidance is expected at a minimum. If the Fed manages to deliver a very clear easing message, this could prove very supportive of risk sentiment, commodities and smaller currencies that often correlate with risk appetite.

Next Thursday the Norges Bank meets and  is expected to hike rates and  provide its latest guidance on where it sees the policy rate in the years to come. With Norwegian rates falling recently in line with global rates, the market is perhaps expecting a slight lowering of the path. Norges Bank could surprise either way, but may be eyeing the 10.00 level in EURNOK and we think that it would want to avoid sending the NOK even weaker from there(the 10.00 level has been the approximate historic top,  even over the global financial crisis).

As well, Norway’s CPI is not as low as the levels seen elsewhere and there is no urgency to change the message.

In this light, owning some optionality in a pair like EURNOK – where NOK potentially stands to gain on the Norges Bank decision if guidance is sufficiently hawkish, or at least non-dovish and the bank delivers the expected rate hike. But NOK could also get some extra support if the Fed manages to surprise on the dovish side and supports risk sentiment and commodity prices via a weaker USD.

There are no certainties either way, and EURNOK is bottled up in a range so we would prefer to express a view through the options market.

Trade for EURNOK downside next week (with spot trading 9.774 on June 14): Long EURNOK 9.725 put, expiry June 26, cost 0.0252, so breakeven right around 9.700

Traders or hedgers of existing NOK long exposure believing that the Fed is not at all ready to deliver on market expectations and that risk sentiment could stumble badly if they don’t and that Norges Bank may also wax cautious could look to do the opposite and buy a EURNOK call for the same date, strike 9.825 (costs a few pips more than the put).

Note: Traders with a longer-term time horizon may look to stretch the strike prices a bit further and take the expiry to a few days to the far side of the June 28-29 G20 meeting, which could see developments in the US-China relationship (i.e., a Xi-Trump meeting and its outcome.) that rock markets either positively or negatively.


EURNOK has been bottled up in a tight range lately and may make a break if market volatility picks up in the wake of the FOMC meeting.
Source: Saxo Bank

All of the premium risked can be lost in an options trade.

Norges Bank may be more cautious than expected in its outlook and the Fed may not deliver as much as expected, which could lead NOK to trade to the weak side instead. Alternatively, EURNOK could simply remain rangebound for now.

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)

40 Bank Street, 26th floor
E14 5DA
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992