• Sharp Reversal to Dual Support Level
• Looking for a Resumption in the Uptrend
• Long Trade Idea for USD/NOK
After a “brutal” reversal in USD/NOK, the pair has reached trend line and Fibonacci retracement support where a surprise resumption in the previous uptrend could materialize.
Since the bearish reversal from its rising wedge formation at the 6.30 level, we have seen a brutal decline in USD/NOK all the way back below 6.00, and investors are locking in profits after being long the US dollar (USD) and are changing the prevailing bias to now favor a stronger Norwegian krone (NOK).
As stated previously, we had two main target prices for a USD/NOK short trade, and those were 6.10 and 5.95. The final target price was very nearly reached on Thursday (March 6), when the low was just above 5.96. However, this area may provide some support, as we have a long-term trend line in place since early 2013, and the 61.8% retracement from the September 2013 bottom.
In that respect, we still believe the trend is our friend in USDNOK, and we are currently looking for the pair to resume its positive trend of higher highs and higher lows in upcoming days and weeks.
USD/NOK: Technical Outlook
Support: 5.95, 5.90, 5.85, and 5.75, then 6.05 and 5.95 on the upside
Resistance: 6.05, 6.22, and 6.30
USDNOK rejected from its upper trend line in a bearish rising wedge formation in early February and has since seen a brutal decline all the way below 6.00 without any meaningful pullback or retracement. However, at current price levels around 5.95-5.97, the pair should find greater support while close to the long-term rising trend line in place since early 2013, and the 61.8% retracement since the September 2013 bottom.
Furthermore, we notice a slight positive divergence between momentum, as measured by the Relative Strength Index (RSI), and the underlying price action in USDNOK. This also lends some credibility to a meaningful retracement in the upcoming days and weeks.
If USD/NOK fails to hold support around 5.95, we might face a deeper decline later in 2014 to 5.90 and perhaps even further to the 5.80-5.75 area.
On the upside, we have established resistance at 6.05, 6.15, and 6.22. The broader range between 6.05 and 6.22 will remain as 2014’s key zone for USD/NOK. A real breakout in either direction might provide a longer-term direction for the pair.
Fundamental Factors Impacting USD/NOK
Furthermore, it seems like the Norwegian krone (NOK) is running ahead of the underlying fundamentals in Norway. The next Norges Bank policy meeting is slated for March 27, but ahead of that meeting, we have February’s inflation numbers, which are due for release on March 10.
For January 2014, inflation surprised to the upside and boosted sentiment for the krone, but this is unlikely to have prevailed throughout February. Instead, it could be a cold shower, at least in the short-term, for NOK bulls.
Long Trade Idea for USD/NOK
Using half the desired position, go long USD/NOK at current levels (between 5.95 and 5.98). Add to the position if we see a bullish reversal pattern from the nearby support level.
The stop loss should be executed if USD/NOK closes below 5.92 on the daily time frame. Key price targets for this trade idea are 6.15 and then 6.22.
By Rafiul Hossain, Guest Analyst, DailyFX.com