- Negative RSI Divergence on Weekly Chart
- Failure to Overcome Resistance Near 8.55
- Potential Short Set-up in EUR/NOK
Since early 2013, we have seen a clear pattern with higher highs and higher lows in EURNOK, and price peaked around 8.55, a level that doubles as a great horizontal resistance area. This move has mostly been supported by a better economic outlook for Europe over the past year.
However, at the latest European Central Bank (ECB) meeting, central bank President Mario Draghi was clear about the Bank’s intentions to ease monetary policy if necessary to support the economic outlook for Europe if we see a possible slowdown this year.
Meanwhile, in Norway, after a soft year in 2013, we might see a strengthening of the economy driven by a weaker Norwegian krone (NOK), both against the euro (EUR) and US dollar (USD). If macro supports, we should see a stronger NOK in the upcoming months.
Guest Commentary: Technical Outlook for EUR/NOK
Support: 8.35-8.30, 8.20, 8.00-7.95
Resistance: 8.45, 8.53-8.55, 8.90-9.00
The overall uptrend in EURNOK has been clear for quite some time given the higher highs and higher lows put in since early 2013. However, in December 2013, price retreated from a great horizontal resistance area between 8.53 and 8.55.
Along with the uptrend in EURNOK, we have also developed a negative divergence between the Relative Strength Index (RSI) and price. On the recent top in the 8.55 area, the momentum in RSI was weaker, as evidenced by the lower high, and hence, we have a negative divergence on the weekly chart.
With great horizontal resistance and a negative RSI divergence, the risk remains high for a greater pullback in EURNOK before the pair ultimately regains some strength for another test of the highs in the 8.55 area.
On the downside, we have established strong support between 8.35 and 8.30, then lower at 8.20, and finally, the key support level around 8.00. On the upside, a break above 8.55 will give room for a potential move up to the 9.00 level.
Potential moves to watch in EURNOK would be either a break above 8.55, or a move below support around 8.00. Otherwise, we should expect more horizontal movement between key price levels.
Trade Idea for EUR/NOK
Using half the desired position, short EURNOK at current levels (above 8.35). Add to the position if we see a move to 8.45 or higher. The stop-loss should be executed if EURNOK closes above 8.55 on the daily time frame.
Normally, EURNOK is a slow mover, but the price target for this trade is 8.00. If we reach this area, this would give a potential move of 4.19% from the 8.35 entry level.
By Rafiul Hossain, Guest Analyst, DailyFX.com