EUR/NOK price forecast as the exchange rate is at an inflection point

The Norwegian krone (NOK) is the thirteenth most traded currency in the world and was introduced in 1875 when Norway joined the Scandinavian Monetary Union.

Together with other Nordic European countries, Norway has a strong economy fueled by commodity revenues and is home to the largest sovereign wealth fund in the world – Norway Government Pension Fund Global. It manages over $1.3 trillion in total assets.

Most of the other European countries share a common currency – the euro. It means that trading the EUR/NOK exchange rate is based mostly on the interest rate differential between the two central banks (European Central Bank and the Norges Bank) and the events affecting the commodity market (i.e., crude oil and gas market).

The two central banks have a similar interest rate, currently sitting at 3.5% in Norway and the euro area. Therefore, trading the EUR/NOK currency pair this summer is tricky, as one can build both a bullish and a bearish case.

EUR/NOK at an inflection point

EUR/NOK is in a bullish trend, as reflected by the series of higher highs and higher lows it made in the past several months. In 2023 the rally continued until bears stepped in at EUR12 for one krone.

At this point, one can make both a bullish and a bearish case for EUR/NOK. The bearish one, seen in black on the chart above, calls for an inverse head and shoulders pattern, which points to an imminent move toward the EUR11 level.

On the other hand, the bullish case, seen in blue, is based on a continuation pattern – a triangle.

It may be that the bearish case is more attractive to the technical eye, but the odds are that we will see a new high his summer. First, fighting such a strong bullish trend is risky, as even if the market moves below the neckline, there is no guarantee of more follow-through.

Second, the next ECB meeting is on July 27, while the Norges Bank meets again only on August 17. With the ECB almost guaranteed to raise rates again, shorting the EUR/NOK here looks like a risky trade.