A big day for EURNOK and NOKSEK as Norges Bank leans against the idea that it will ease again. NOK could rally further on the back of today’s developments. The Norges Bank felt perhaps that it had the luxury to be a stick in the mud and not signal any further rate easing for the near future as it is wrestling with an ugly domestic housing and credit bubble and perhaps because it feels that it has the luxury not to signal anything because EURNOK had backed up sharply off those multi-year lows and the EU systemic trouble appears to be rapidly fading (from market pricing – not my impression, generally speaking!). The reaction to the Norges Bank was immediate and large in EURNOK and other NOK crosses (notably NOKSEK) as NOK rallied after the decision and the indication that the bank expected no change to the rate through next year. Norway 2-year swaps leapt 4-5 bps on the day to adjust to the new guidance.
Chart: EURNOK
The pair has corrected back to the cirtical 7.55-7.57 area. If that gives way, we’re looking at the asending trend-line as the next area of note and possibly the 200-day moving average eventually. The market will be looking to fade rallies and test those initial support levels. To the upside, the 7.65 needs to be taken out to get the structural rally back in place, and that’s suddenly looking very far away.
Chart: NOKSEK
A huge reversal here that caught the market off-guard and we might look for the 200-day moving average to come into play up above 1.1400 in the days/weeks to come.
SAXO BANK