FX Update: NOK as a microcosm of FX and global markets

A brief update today – please consult today’s Quick Take for a great news roundup and setting of today’s market and trading agenda and then today’s Saxo Market Call podcast for our latest take on what we are looking at ahead of this weekend.

Yesterday was another day full of wild swings in the market, one that generally saw the USD spiking to new highs across the board – a move that was thankfully reversed overnight as this is our key indicator for the ability of global markets to begin to calm. Yesterday, the Fed opened up swap lines to another long list of countries’ central banks, including, very important Norway.

We pull out Norway in our discussion today as it is the single currency at the confluence of the drivers that have been shaking global markets in recent weeks. The first key that brought NOK back from the brink was the abovementioned USD swap lines opening up and the Norges Bank indicating that it was ready to intervene in the market if necessary. The second key was the oil price vaulting higher from yesterday’s fearsome lows on the news that the US may look to mediate between Saudi Arabia and Russia in its ongoing price war. In short, the Norwegian krone is a kind of microcosm for whether markets can piece together some stabilization and even normalize somewhat, even as the Covid19 news is hardly likely to improve for many countries, including Norway, that are in the exponential upswing portion of their outbreaks.

By the way, after cutting rates by 50 bps just last week, the Norges Bank slashed the policy rate 75 bps further just this morning to take it to 0.25% - still matching the highest policy rate among G10 currencies. NOK hardly blinked as the other factors above dominate the situation for now

Chart: EURNOK
EURNOK has traded in a shocking 10% range over the last couple of sessions and is an excellent barometer of global risk appetite, trading as it does with considerations of global liquidity, the oil price and natural gas prices and the outlook for the global economy. EURNOK has likely put in a top for now if the oil price stabilizes and rises from here and could be set for further gains once the EU Covid19 outbreak fallout begins to bend in the right direction for Europe as a whole. Still, it will likely prove a bumpy ride for NOK traders, with near term risks that US overtures to mediate in the oil price war are rebuffed. It is clear from current and past price action that round price levels (11.00 – 11.50, 13.00, etc.) loom large in traders’ minds.