• The dollar traded mixed against its major counterparts during the European morning Thursday. It was higher against EUR, AUD, NZD and CAD, regaining much of the ground that it lost after the FOMC decision last night. It was lower vs NOK, SEK, CHF and GBP. The greenback remained unchanged against JPY.
• The Swiss National Bank kept rates unchanged, as expected. This disappointed some market participants who had been looking for a rate cut and CHF strengthened on the news.
• On the other hand it was a big surprise to the market that Norway’s central bank left its key policy rate unchanged at +1.25%, despite near-unanimous expectations among analysts of a 25bps rate cut. The Bank said that until the publication of the next monetary policy report in June, the interest rate should lie in the interval of 0.5%-1.5%.
• The effects of low oil prices on the real economy have been relatively small and house prices are still rising at a fast pace, justifying their on-hold stance, the Bank argued. On top of that, developments in the Norwegian economy have been broadly in line with that projected at the December meeting: unemployment has remained stable at low levels while the CPI, uniquely among the G10, is close to 2.5% target. However, the outlook is somewhat weaker than anticipated as oil prices continue to decline. As a result, activity in the energy sector may decrease more than previously assumed. Wage growth is also expected to remain subdued. Governor Olsen said that if economic developments ahead are broadly as projected, there are prospects for a reduction in the key policy rate.
• USDNOK plunged approximately 3% at the decision and declined even more in the following hour. Despite the good current fundamentals of Norway, the fact that the Governor left the possibility of rate cut open means that NOK could weaken again in the near future.
• USDNOK fell of the cliff during the European morning Thursday after the Norges Bank decision. The plunge was halted fractionally close to the near-term uptrend line taken from the low of the 26th of February, and above the psychological support line of 0.8000 (S1). My view is that the reaction to the Bank’s decision is finished and the forthcoming move is likely to be positive. A break above the resistance of 8.1000 (R1) could probably confirm my view and perhaps encourage the bulls to pull the trigger for our next resistance at 8.2800 (R2). My view is based on the following facts: 1) the rate remains above the aforementioned uptrend line, 2) the dollar overall regained its glamour as I expected (EUR/USD is back where it was before the Fed’s statement), and 3) oil prices are falling again. Thus I would treat today’s collapse as an isolated incident. Even if I prove wrong and the decline in USDNOK continues, the overall path remains positive and I would see any further bearish extensions as a corrective move of the larger uptrend. On the daily chart, the rate is printing higher peaks and higher troughs above both the 50- and the 200- day moving averages since September.
• Support: 8.0000 (S1), 7.9100 (S2), 7.8400 (S3).
• Resistance: 8.1000 (R1), 8.2800 (R2), 8.3900 (R3).