USD/NOK forms a bullish chart pattern after Norges Bank surprise
- The USD/NOK exchange rate pulled back after the Fed decision.
- In Norway, the Norges Bank delivered a surprise hawkish decision.
- It hinted that it will increase rates at least two more times.
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The USD/NOK retreated to the lowest point since February 23 after the latest Norges Bank and Federal Reserve decisions. It also retreated as crude oil prices crawled back after falling to the lowest level since 2021. The pair was trading at 10.40, which was lower than this month’s high of 10.90.
Norges central bank decision
The biggest forex news of this week was actions of key central banks, including the Fed and the Norges Bank. On Wednesday, as we wrote here, the Fed decided to ramp up its interest rates as it continued to fight against inflation. It hiked rates by 0.25% for the second straight month. That increase was lower than the 0.50% that Jerome Powell had hinted two weeks ago.
Analysts expect that the Fed has at least more rate hike to implement before hitting a strategic pause. The bank will then leave rates higher as Powell ruled out cutting rates later this year.
Elsewhere, in Norway, Norges Bank delivered a relatively hawkish decision as inflation in the country remains sticky. It caught many analysts by surprise as it hiked rates by 0.25% to 3.0%.
Most importantly, the bank hinted that it will increase rates again in May to counter the inflationary pressure of the Norwegian krone. Analysts now believe that the bank’s terminal rate will be at 3.50%. In a note, analysts at ING wrote that:
“A hawkish Norges Bank cannot counter those characteristics of the krone, but should European sentiment continue to stabilise, it can offer a breeding ground for recovery that can ultimately help Norges Bank limit imported inflation.”
The other catalyst for the USD/NOK, EUR/NOK, and GBP/NOK is the trends in the crude oil market. Brent has risen to $75 while the West Texas Intermediate (WTI) rose to $70. Oil prices are important for the Norwegian krone because the country is one of the top oil exporters.
The longer-term chart shows that the Norwegian krone has been weakening against the US dollar. The USD/NOK pair has risen from a low of 8.1438 in May 2021 to 10.88 this year. Recently, it has pulled back and now sits at the 23.6% Fibonacci Retracement level.
The pair has formed a cup and handle pattern, which is usually a bullish sign. It also sits above the 50-day exponential moving average. Therefore, the USD to NOK pair will likely bounce back as buyers target the key resistance at 10.82.
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