Norway news and fundamentals

• Since the discovery of North Sea oil in Norwegian waters during the late 1960s, exports of oil and gas have become very important elements of the economy of Norway. Therefore, for Norway, these conditions include the oil price and economic developments among trading partners resulting in these variables to be treated as exogenous factors to measure the strength or weakness of the USD/NOK pair.
• Norway’s central bank (Norges Bank) its key rate policy is sitting at 0.50% as effective from 18 March 2016, furthermore the rate decision will be announced on 15 December 2016. During September 2016, Norges Bank’s Executive Board has decided to keep the key policy rate unchanged at 0.50 percent. The Executive Board indicated in September 2016 that the key policy rate would most likely remain at 0.50 percent in the period ahead.
• In November 2016, Norges Bank will sell foreign exchange on behalf of the government equivalent to NOK 900 million per day. Norges Bank purchases foreign currency from the State’s Direct Financial Interest (SDFI) each month. If the government’s net cash flow from petroleum activities exceeds the non-oil budget deficit, some of the foreign exchange purchased from the SDFI is transferred to the Government Pension Fund Global (GPFG). Norges Bank sells the remaining amount in the market. If the government’s net cash flow from petroleum activities is insufficient to cover the non-oil budget deficit, foreign exchange will be transferred from the GPFG to cover some of the budget deficit. Norges Bank will then sell foreign exchange from the GPFG, as well as the foreign exchange from the SDFI, in the market. Norges Bank performs this task on behalf of the government.
• Norway’s Banks’ capital ratios have doubled since the financial crisis and liquidity has improved. At the same time, some aspects of the Norwegian economy make the financial system vulnerable. This primarily relates to high property price inflation combined with high household indebtedness. The banking sector’s profitability remains firm despite higher losses. The losses are primarily associated with loans to oil-related industries. The banks can absorb substantial losses on oil exposures without a fall in their capital ratios. High house price inflation could lead to increased household borrowing. This could make households as a whole more vulnerable and increase the risk of a sharp decline in demand and higher bank losses further ahead. Norwegian banks have become more resilient. The stress test on the banks’ capital ratios could fall markedly in the event of a downturn, but banks will still meet the minimum requirements.
In conclusion to the above, it seems that USD/NOK pair will face challenges (exogenous factors) from the strenght of U.S., oil price and supply oil glut leading to the USD/NOK to move up to possible highs of January 2016 @ around 8.7, despite Norges Bank selling foreign exchange on behalf of the government equivalent to NOK 900 million per day (hence i will be looking to sell the pair).

Oil news
Oil was down by over 1 % on 14 November 2016 on persistent concerns of a supply glut. OPEC plans to rein in output to 32.5-33 million barrels a day but doubts remain about whether it can get members to agree to that. The cartel has until its formal meeting on 30 November 2016 to broker a deal. In conclusion, these events could lead to the USD/NOK pair to move up.

US news
There is speculation U.S. shale output could rise under a Trump presidency as the number of rigs operating in the U.S. increased by two to 452. Also 14 November 2016, U.S. crude was down 1.52%, while U.S yield and bank stocks rose. In conclusion, these events could lead to the USD/NOK pair to move up.

Trade Plan
Following the election of Trump the USD/NOK pair continued to move up as the USD continued to be strong, while falling oil price further put pressure on the NOK to depreciate. Therefore, my trade plan for these week is to closely monitor the bullish momentum of the pair for signs to sell the pair @ MR2 8.5233 or @ MR3 8.7472 also @ 8.8525.

I will be looking to sell @ MR2 8.5233 or @ MR3 8.7472 also @ 8.8525, but I am bias to sell @ MR3 or 8.8525 due to (i) U.S continued strength as U.S. bank stocks and yields are rising, (ii) the continued drop of oil price, (iii)oil supply glut, (iv) The uncertainity of the OPEC 30 November 2016 oil supply deal, and (v) Trump presidency could lead to U.S to furhter supply oil as the rig increased by two to 352.

The bullish momentum of the pair broke the WR3 @ 8.3780.

I still see a bullish trend as the MA 21 and 55 don’t look like crossing and this supports my bias to look at selling this pair at @ MR3 or 8.8525.

One thought on “NOK Weekly Review 14 November 2016”

  1. Ryan Gandalf van Jaarsveld says:

    Thanks bud – would be great to see a simple summary of all the initial copy and an indication of what we need to look out for that could create further weakness or strength in the weeks to come

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