EURNOK – as we await the impact of the Fed Chair Powell speech later today, we also keep an eye on EURNOK, which has once again been pressing down on an interesting chart area below 10.50 this morning, having since backed up slightly. Factors supporting the NOK include a country that has suffered less of a growth hit to its GDP at -5.1% QoQ, relative to any other European economy in the same quarter. As well, this crisis won’t touch Norway’s sovereign balance sheet, as all of the significant deficit spending the government is doing to stimulate will be funded by unloading assets from the country’s pension fund, so unlike the central bank QE required by other countries for governments to fund themselves. NOK is still cheap in long term valuation terms and could be set for an additional rally if sentiment in Europe continues to improve as we note below.
From here, EURNOK prospects are focused to the downside (stronger NOK), provided oil finally breaks higher more durably than it has been able to recently, and provided we sidestep the double-dip fears in Europe and elsewhere from the COVID-19 outbreak, which may require a steady drumbeat of positive outcomes from the various vaccine candidates undergoing trials at present. If the outlook darkens, NOK could remain rangebound here and EURNOK could explore higher resistance levels after a series of lower highs that looks NOK-positive, provided we soon break below this line of consolidation and the 10.50 area more forcefully. That could set up a run toward the next important area into 10.30-25. Specific to today’s key Fed chair Powell event risk and beyond the medium term fundamental situation, If Powell’s speech triggers a “sell the fact” consolidation in the narrative supporting risky assets and even oil prices in recent weeks, NOK could be in for some rough sailing here, but the structural picture looks better for NOK at these valuations than for the euro, so any setback and squeeze higher would likely prove temporary unless we are headed for a profound and sustained new trough in oil prices and market sentiment. We’ll update the outlook either way on EURNOK in the days ahead, but the situation will likely need to break one way or the other in the near term after a persistent shrinking of trading ranges over the last several weeks.