Crude Oil Prices, NOK, Brace for Norges Bank, FOMC Rate Decisions

Crude Oil Prices, NOK, SEK, FOMC – TALKING POINTS

• Crude oil prices, petroleum-linked NOK eye slew of central bank rate decisions

• Norges Bank, FOMC likely to affect Nordics most, roil global financial markets

• Will politically-induced supply disruption risks allow Norges bank to delay cuts？

Learn how to use political-risk analysis in your trading strategy!

The Norwegian Krona and Swedish Krona will be in for a hectic week ahead of a slew of central bank rate decisions against the backdrop of escalating political tensions in the middle east. The biggest scheduled event risk for the week is the FOMC rate decision and commentary from Fed Chairman Jerome Powell. Will the central bank be able to live up to the markets ultra-dovish expectations or will it fall short like the ECB？

Crude Oil Prices, Petroleum-Linked Norwegian Krone Surge After Aramco Drone Strike

Crude oil prices chart created using TradingView

FOMC Rate Decision: Will Fed Meet Market's Dovish Expectations？

Overnight index swaps are currently pricing in a 98 percent chance 25-basis point cut at this week‘s Fed meeting, with a 41 percent chance of a 50bp cut in October. As fundamentals continue to erode, markets have become increasingly desperate for liquidity against the backdrop of a slowing global economy that is being plagued by political shocks. However, does the Fed believe the economy needs as much easing as they’d like？

The short answer is “it appears they do not”. Mr. Powell has continued to reiterate that the central bank is on a data-dependent path and will adjust policy “in accordance to the prevailing economic circumstances that fall under the purview of its mandate”. Investors who are therefore betting on Mr. Powell shifting to a more dovish tone may be setting themselves up for failure which could rattle equities and Nordic FX markets.

Norges Bank Rate Decision: Will Political Risk Help Norges Bank Delay Cutting Rates？

Markets are expecting for the Norges Bank to hold benchmark interest rate at 1.25 percent amid a slowing global economy and weaker growth out of Europe, Norways biggest trading partner. While the Norwegian central bank has managed to squeeze in two rate hikes this year, it appears they may soon succumb to the pressure of their peers and switch to easing.

The petroleum-based economy is exposed to sentiment-based oscillations in global financial markets, particularly those related to crude oil. Politically-induced supply disruption fears have helped boost crude oil prices and may therefore indirectly help the central bank to delay rate cuts. But it is more likely that slower global growth fears will overwhelm the upward impetus of political threats and will pressure crude oil prices and the Norges Bank.

SEK Traders Eye Riksbank Meeting Minutes, Unemployment Rate

The economic docket this week in Sweden remains barren apart from the release of local unemployment data. Analysts are estimating a 6.3 percent print, slightly lower than the previous reading at 6.9 percent. Swedish Krona traders will also closely be watching the publication of the Riksbanks Sept 4 meeting minutes where officials said they were still looking to squeeze in another rate hike in 2019.

However, markets do not appear convinced as overnight index swaps are currently pricing in a meager 2.8 percent chance of a hike in October. Looking at the implied policy rates across the various multi-month/year tenors, the downward shift since May reinforces the notion that markets have grown more dovish. To learn more about Nordic FX markets, be sure to follow me on Twitter @ZabelinDimitri.

USD/NOK Breaks Through Key Support: What Next？

USD/NOK broke through a one-month rising support channel (yellow parallel lines), exposing the pair to test the lower crust of the 18-month ascending floor (red parallel lines). If the breach is met with follow-through, traders may start getting anxious that the pair will once again deviate from the upward-sloping trend. Having said that, the longer-term outlook is still supportive of a stronger US Dollar-Norwegian Krone exchange rate.

USD/NOK chart created using TradingView

USD/SEK Looking to Break Below Multi-Month Support Again

USD/SEK broken newly-formed rising support channel (yellow dotted lines) and has been trending lower. The pair is now looking to retest the lower cusp of the multi-month ascending floor, potentially leading to an aggressive selloff if the pair break below it again. However, potentially violent volatility this week could make technical analysis more difficult and could cause a reversal in the small-scale downtrend.

USD/NOK chart created using TradingView