The Norwegian Krone has posted modest gains vs the US Dollar after the Executive Board of the Norges Bank (Norway’s Central Bank) announced an increase in its benchmark policy rate by 25bps to 1.5%.
In a relatively hawkish statement, the Executive Board of the Norges Bank noted that the Norwegian economy was strong and solid, with inflation near the bank’s set inflation targets. It also noted that setting a higher policy rate would “mitigate the risk of a renewed acceleration in debt growth and house price inflation”.
The statement also noted the bank’s decision to use a cautious approach in setting interest rate, citing uncertainties surrounding the prospects of global growth.
It must be noted that the rate increase has not followed the aggressive tightening cycle that was predicted in the June report, as concerns for global growth and monetary policy easing in many countries abroad have led the Norges Bank to adopt a cautionary approach in performing today’s action.
This has weighed on the USDNOK, which has seen a rather muted response to the rate hike with the Norwegian Krone gaining modestly on the US Dollar to at 8.9012 the time of writing this, having touched off lows of 8.87105. Intraday highs were seen at 8.96420.
Technical Play for USDNOK
On the 4-hour chart, the USDNOK is starting to challenge the lower border of the down channel very vigorously. This price move also corresponds to the challenge of the neckline on the head and shoulder pattern on the daily chart.
Norwegian Krone bulls would be looking for a break of the neckline that would confirm the head and shoulders pattern. This could signal the downside trend reversal, with a measured move that is expected to target the support level at 8.80283 (March 21 high in role reversal).
On the flip side, failure to break the neckline would negate the pattern and open the door for a retest of 9.02107 (Aug 20 high) at the first instance.