Central Bank Battle in NOK Pairs
Cory Mitchell, CMT
The USDNOK rallied more than 30% between March 6 and March 19. The Norges Bank, the central bank in Norway, then said they were considering intervening on March 19. It looks like they did, as the pair plunged 10%. This was followed by another sharp rally as traders sold off NOK and bought USD.
The USD then continued to sell off, possibly fueled by more Norges buying of NOK (USD goes down relative to NOK). Whether it was their direct NOK buying or the signal to the market that they would, the pair has fallen 14% off its peak. The selloff in USDNOK was also helped by some of the risk coming off in global markets as global stock markets saw a bounce last week. Those who piled into the USD as a safehaven during the stock market decline would have eased those bets this weak as many global markets rallied.
A line in the sand seems to have been drawn. On the evening of March 26, the pair has flatlined near 10.40. Recall that the Norges has indicated they want to push this pair down by buying NOK (selling USD).
But after such volatile conditions, it is weird to see the pair more in such a tiny range after such huge moves. It is like the Norges selling of USDNOK has hit a massive buyer, or the Norges has only decided to sell it down (buy NOK) up to that point.
I bring this up not to necessarily point out a trade, but rather to point out what manipulation looks like. We don't typically see a price flatline in a tiny range for 8 hours+, especially in a 0.2% range when we have been seeing greater than 3.5% moves per day.
For most traders it better not to get involved. If USD buyers step in, the Norges may have sell orders only at certain levels, and when the buyers clear those levels, there could be a gap higher.
On the flip side, the Norges may decide to extend their NOK buying campaign, pushing the USDNOK to lower levels. In either case, there is a gap risk. But yes, there is an opportunity to profit.
Which Way to Go
If the USD starts rallying against other currencies, if oil drops, or if major global stock markets have a hard sell-off, these are all things that would push the USDNOK back up, and may overwhelm the Norges selling the USDNOK. In other words, watch for USDNOK to go back up.
If the oil rallies, the USD declines against other currencies, or if major global stock markets continue to hold up well and push higher, these are things that would help the USDNOK decline and help the Norges Bank in their campaign to lower the USDNOK.
This isn't a trade where I set in stone what I will do. What I do will change as conditions change, or I may opt to not trade it at all. There are plenty of other opportunities out there.
A similar pattern is playing out in EURNOK. It has fallen off its peak and is flatling near 11.50. As I write this we are starting to see an uptick in the buying of EURNOK. The EUR has been rallying aggressively against the USD on March 26.
The same process is going on here. The Norges is buying NOK helping to push up NOK, which will in turn drive down EURNOK. It has worked, along with the other factors discussed above.
As with the USDNOK, we will see who wins the battle.
By Cory Mitchell, CMT. Join me in my free Facebook swing trading group.
Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using leverage.