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.


The Saxo 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 is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, 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 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 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 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 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 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-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region


Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.