Risk Aversion and Commodities Put Downward Pressure on Kroners


In Scandinavian news this week we have a few factors to consider. First is the purchase of 4 billion Thai Baht by Sweden which has helped boost Sweden’s market share and ability to conduct more long-term business in the South-Asian markets. Immediate impact, on the other hand, was a drop in the value of the SEK, which analysts anticipate will reverse in the near future.

Norway’s currency also appears damaged by recent volatility in the Crude Oil markets as the NOK is tied with commodities. If Crude Oil loses its support above $70 a barrel, as it has done repeatedly these days, we could see the Norwegian Krone take another hit. Good news for the NOK, however, is the sudden sharp rise in oil prices during the last 24 hours, which has helped push the commodities-tied currency to modest strength.

We can verify the connection to commodities by seeing the relatively flat-trading EUR/NOK as opposed to the strong fluctuations of the USD/NOK, which signifies a link to oil. If it fails to make a solid breach of its recent downtrend against the USD, traders should anticipate a sharply falling NOK in the days ahead (See chart below for technical analysis).

Overall, the Scandinavian currencies, with the exception of the Danish Krone, are losing strength to the USD and EUR as a rise in risk aversion damages these high-yielding currencies. The uncertainty of commodities markets puts a damper on currencies like the NOK. Also, the portfolio diversification of Swedish banks doesn’t appear to be over, which will lead to a short-term downfall in the SEK. Once the economy begins to pick up we should see a recovery for these currencies, which is the good news at the end of a bleak article such as this.

USD/NOK – 4-Hour Chart

– Above is the 4-hour chart of the USD/NOK by ForexYard.

– The indicators used are the Stochastic and MACD.

Point 1: The recent uptrend appears to have been breached, suggesting a downward movement.

Point 2: The bullish cross on the Stochastic suggests an impending upward correction.

Point 3: As the price has crossed into the territory below 0.0, there is a chance that a bullish cross is in the works, supporting the notion of an upward move.

– While the downtrend appears to be broken, this may NOT be the case. The indicators presented here suggest that an upward movement is impending, which means this pair may have just been testing the lower border. Expect bullishness.