USD/NOK: Krone could recover after weak Norway inflation data
- The USD/NOK hit a major resistance level after the weak Norwegian inflation data.
- Consumer prices rose by 3.1% year on year because of key services sector.
- The pair also rose because of the stronger US dollar.
The USD/NOK price rallied on Friday helped by the stronger US dollar and the weak Norwegian inflation numbers. It rose to 8.5172, which was 1% above the highest level this week.
Weak Norway inflation
The Norwegian statistics agency published relatively weak consumer inflation numbers. The data revealed that the headline consumer price index (CPI) declined by 0.3% in March after rising by 0.7% in February. This decline led the year-on-year CPI to drop from 3.3% to 3.1%. In the same period, core CPI dropped from 0.4% to 0.3% and remained at an annualised rate of 2.7%.
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According to the agency, the lagging inflation was mostly because of limits to some businesses, especially those in the services industry. The prices of housing, water, and electricity also lagged in March.
Therefore, the USD/NOK rallied because forex traders are worried about the impact on inflation on the Norges Bank. In the past meetings, the bank has come out in support of higher interest rates because of the country’s economic recovery. Still, as the country ramps up the vaccination process, there is a possibility that the bank will continue being hawkish.
The USD/NOK is also rising because of the relatively stronger US dollar. After dropping throughout the week, the dollar rallied against top currency peers. The closely-watched dollar index has risen by more than 0.25% as US bond yields rise. It has risen by 0.20% against the euro, 0.15% against the sterling, and by 0.40% against the Japanese yen.
The dollar strength is mostly because of the rising bond yields. The 10-year bond yield has risen to 1.66%, which is still below the weekly high of 1.73%. The 30-year yield has risen to 2.33% as the market price-in a stronger recovery of the US economy.
USD/NOK technical forecast
The four-hour chart shows that the USD/NOK has bounced back today. It reached a high of 8.5172, which is along the descending channel shown in black. The price is also along the upper side of the Bollinger Bands and is slightly above the Parabolic SAR indicator. Therefore, in my view, the pair will resume the downward trend as bears target the lower side of the channel at 8.45. However, a break above the upper side of the resistance will invalidate the bearish case. You can learn more about technical analysis in our free forex trading course.