USDNOK Pressured By Rising Oil Prices As Hurricane Laura Shuts Down US Production

Summary:

The USDNOK is under pressure, as the shutdown of oil facilities in the Gulf Coast by Hurricane Laura send oil prices and the Norwegian Krone higher.

As the approach of Hurricane Laura shutters Gulf Coast oil production, crude oil prices are rising and boosting the Norwegian Krone. The rise in crude oil prices is a welcome tailwind for the Krone, which saw its GDP fall less than economists had expected. Norway GDP fell by 5.1%, less than the 7.8% decline that had been predicted by analysts.

The approach of Hurricane Laura, which is expected to strengthen to a Category 3 hurricane, has caused the shutdown of production of about 1 million barrels per day in the US Gulf Coast, which accounts for close to 1/6th of US crude oil production. As expected, the supply deficit is causing a price jump, as no one knows the extent of damage the hurricane could cause or when production resumes. Combined with some US Dollar weakness and the hurricane-induced boost in crude oil prices on the WTI and Brent benchmarks, the USDNOK is down 0.23% this week and currently trades at 8.98628. This is slightly above intra-week lows of 8.92544.

Technical Outlook for USDNOK

The pair broke below the ascending trendline some weeks ago, A pullback to the broken trendline occurred last week. That candle was firmly rejected at the trendline (now acting as resistance in role reversal). This provides a technical basis to follow the strengthening of the NOK against the USD on the fundamentals. Further weakening of the pair brings in 8.80393 as an initial downside target, with a further decline pushing towards the 78.6% Fibonacci retracement level at 8.49596. 8.18807 makes up a new target down south.

Recovery in the USDNOK has to follow a reversal of the fundamentals for crude oil. If this works out, then 9.22531 becomes the upside target to beat. Breaking this price target means the rising trendline also gets taken out, allowing the USDNOK to target the 9.48835 resistance. 9.80889 and 10.13330 are also resistance targets further north, but it has to take a significant change in the prevailing bearish sentiment on the USD to attain these targets.