Norges Bank surprises and hikes 50bps

Norway’s Norges Bank surprised markets earlier by hiking rates 50bps from 0.75% to 1.25%. Expectations were only for a rate hike of 25bps. The Committee was primarily concerned with the risk of inflation moving higher than anticipated against the background of little spare capacity in the Norwegian economy. Norway’s CPI for May was 5.7% YoY vs 5.4% YoY in April. This was the highest level since December 1988. The central bank also increased their forecast for interest rates for 2023, from 2.5% at the end of next year to 3% in the middle of next year, while Norges Bank Governor Ida Wolden Bache said she is willing to raise rates by 50bps if needed. The Committee cut its GDP forecast as well, lowering this year’s forecast to 3.5% from 4.1% in March and the 2023 forecast to 1.1% vs 1.6% previously.

During the beginning of the Coronavirus pandemic in March 2020, USD/NOK rose from 9.2412 to a high of 12.1224! The pair then pulled back and made a low of 8.1477 during the week of April 26^th, 2021. USD/NOK has slowly been grinding higher since then. With increasing expectations of higher interest rates from the Fed, the pair started moving aggressively higher in April of this year, forming a flag pattern which targets near 10.5225 on the weekly timeframe. However, the move out of the flag pattern has stalled at the 50% retracement level from the March 2020 highs to the April 26^th, 2021 lows, near 10.1351.

Source: Tradingview, Stone X

On a daily timeframe, the price of USD/NOK has made a flag pattern of its own. The target of for the flag pattern on the shorter timeframe is similar to that of the pattern on the weekly timeframe. However, if USD/NOK is to reach target, it must first pass through horizontal resistance and the previously mentioned 50% retracement level on the weekly timeframe near 10.1243/10.1351. Above there, the next resistance level isn’t until the 61.8% Fibonacci retracement from the March 2020 highs to the April 26^th, 2021 lows at 10.6041. If the flag pattern fails and price moves lower, first support is at the lows of June 21^st at 9.7708. Below there USD/NOK can fall to the lows of June 1^st at 9.3441 and then additional horizontal support dating back to December 2021 near 9.1941.

Source: Tradingview, Stone X

The Norges Bank is the latest bank surprise markets with a 50bps rate hike. Concerns of a rising inflation with a tight labor market were the reasons for the greater magnitude in the hike. They are expected to raise rates by 25bps in August. Could the central bank surprise and hike 50bps again?

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.