• EUR/NOK drops to multi-week lows near 9.6600.
  • The Norges Bank hiked rates by 25 bp to 1.25%.
  • The central bank hinted at further tightening in the next months.

The Norwegian Krone is appreciating sharply vs. its European peer in the second half of the week and is dragging EUR/NOK to the area of 2-month lows in the 9.6600 neighbourhood.

EUR/NOK lower post-NB

NOK has intensified its buying interest today after the Norwegian central bank – the Norges Bank – raised the policy rate by 25 bps to 1.25%, matching the broad consensus among investors.

Following today’s hike, the Norges Bank said that further tightening remains on the table, confirming the view that the Scandinavian central bank continues to decouple from the rest of its developed peers, which remain immersed well into the dovish territory.

The Norges Bank justified its decision on rates on the solid health of the Nordic economy, high capacity utilization and inflation running a tad above the bank’s target.

What to look for around NOK

The mood around the risk complex, Brent-dynamics, a healthy economy and a hawkish central bank continue to be the main drivers for the Norwegian currency for the time being. Recent results from the Regional Network Survey showed fundamentals in the Nordic economy remain pretty solid, reinforcing the case of further tightening by the Norges Bank in the upcoming months as well as a stronger Krone.

EUR/NOK significant levels

As of writing the cross is losing 0.94% at 9.6775 and a breach of 9.6633 (low Jun.20) would expose 9.6221 (78.6% Fibo of the April-May rally) and finally 9.5896 (monthly low Mar.21). On the upside, the next hurdle comes in at 9.8318 (monthly high Jun.11) followed by 9.8761 (monthly high May 10) and then 9.8803 (monthly high Mar.8).

  • Rallied hard on escalating Middle-East tensions after US drone downed.
  • Supported by the drop in US crude stockpiles, OPEC meet agreement, USD declines.
  • Focus on US-Iran geopolitical tensions and US data for fresh directives.

WTI (futures on Nymex) extended its bullish momentum and went on to hit fresh three-week highs at 55.86 in early Europe, now consolidating the latest uptick around 55.50 levels.

The latest move higher was mainly prompted by the latest reports that fanned the ongoing US-Iran conflict, citing that a US spy-drone was downed by Iran. Both sides confirmed the reports while the Iranian Islamic Revolutionary Guard Corps (IRGC) Commander said that downing of the US drone sends a clear message to Washington. Tensions have been rising between the US and Iran and therefore, in the Middle East after last week’s attacks on two tankers near the Strait of Hormuz.

Moreover, the sentiment around the black gold remains underpinned after the OPEC and other producer agreed on a date to meet and discuss the oil output cuts extensions. Additionally, a bigger-than-expected drop in the US crude inventories also offers fresh impetus to oil bulls. The Energy Information Administration (EIA) said on Wednesday that the US crude stocks fell by 3.1 million barrels last week, compared with the expectations for a draw of 1.1 million barrels.

Furthermore, the oil traders cheer the ongoing slump in the US dollar across its main peers after the US Treasury yields got sold-off into an overtly dovish FOMC. The Fed left the interest rates unchanged but pointed towards rate cuts in the coming months. A weaker greenback makes the USD-denominated oil cheaper for the holders in foreign currencies.

Markets now remain glued to the development around the US-Iran conflict while the US macro news will be closely eyed for fresh USD trades and its eventual impact on the US oil.

WTI Technical Levels

Analysts at TD Securities point out that the EU Leaders have gathered to discuss filling the positions of EU Council President, EU Commission President, and ECB President.

Key Quotes

“They had earlier hoped to finalise the nominations over dinner on Thursday (with a press conference to follow), but EU election results have complicated the negotiations, and there's no clear "winning formula" for the three top jobs now. It's not impossible that the ECB President be named later tonight (or at least, an unofficial list of finalists leaked), but it looks more and more like the decisions will now take place at an "emergency summit" on 30 June / 1 July.”

Deutsche Bank analysts suggest that the Fed meeting has opened the door to rate cuts as early as July.

Key Quotes

“They did note that Powell said “there was not much support” for a cut at yesterday’s meeting (excluding Bullard’s dissent), which likely means that they will need to see further deterioration in the data and/or worsening trade conflict to feel fully comfortable cutting in July. Even apart from those conditions, our econ team thinks that Powell’s comments on the ongoing Fed review, plus the persistence of inflation undershooting, potentially signal a willingness to allow for an “opportunistic reflation,” as Governor Brainard has described it. That would argue for a rate cut even if the data and trade talks do not deteriorate.”

“Overall, our econ team expects conditions to evolve sufficiently to warrant a cut in July, and view a 25bps move as more likely than 50bps, and they continue to anticipate a total of three rate cuts this year.”

“The biggest market reaction came in rates, where short-end treasuries rallied sharply and money markets moved to price in even greater odds of Fed easing. There are now 32bps of cuts priced in for the July Fed meeting; implying a near-certainty of a 25bps cut and some additional chance of a 50bps cut. Beyond that, there are now a full 75bps priced in through end-2019 and 100bps over the next 12 months.”

  • The post-FOMC USD selloff continues to fuel the strong recovery momentum.
  • Thursday’s mixed UK retail sales data does little to dent the bullish sentiment.
  • Investors now look forward to the latest BoE policy update for some impetus.

The GBP/USD pair maintained its strong bid tone near one-week tops and had a rather muted reaction to the latest UK retail sales data.

The pair built on this week's goodish bounce from the vicinity of the key 1.2500 psychological mark, or multi-month lows, and continued gaining strong positive traction for the third consecutive session on Thursday.

The post-FOMC free fall in the US Treasury bond yields kept exerting some heavy downward pressure on the US Dollar and turned out to be one of the key factors fueling the momentum beyond the 1.2700 handle.

With the prevailing USD selling bias acting as an exclusive driver of the pair's strong up-move, bullish traders seemed rather unaffected by Thursday's mixed release of the UK monthly retail sales figures.

In fact, the headline sales fell -0.5% in May as compared to -0.1% recorded in the previous month while core figures came in slightly better-than-expected, showing a decline of 0.3% as against 0.4% consensus estimates.

The disappointment, however, came from yearly figures, which showed a sharp deceleration to 2.3% and 2.2% in the headline and core figures respectively as compared to 5.1% and 4.7% growth in the previous month.

Moving ahead, market participants now look forward to the latest BoE monetary policy decision for some fresh impetus, though seems more likely to be a non-event for GBP traders amid persistent Brexit uncertainties.

Technical levels to watch

More comments are hitting the wires from the European Central Bank (ECB) Vice President de Guindos on the monetary policy.

The buying of assets remains part of the ECB's toolkit.

Monetary policy decisions were taken unanimously.

Rate cuts are only a possibility for now.

  • The UK retail sales arrive at -0.5% m/m in May.
  • The UK core retail sales drop by 0.3% m/m in May.

The UK retail sales came in at % over the month in May vs. -0.5% expected and -0.1% previous. The core retail sales stripping the auto motor fuel sales stood at -0.3% m/m vs. -0.5% expected and -0.3% previous.

On an annualized basis, the UK retail sales rose 2.3% in May versus 2.7% expected while the core retail sales also advanced 2.2% in the reported month versus 4.7% previous and 2.5% expectations.

Main Points (via ONS):

“Clothing, footwear sales volumes post biggest monthly drop since July 2015, down 4.5% in May due to cold weather, mixed picture across rest of sector.

In May 2019, online retailing accounted for 19.3% of total retailing, with an overall growth of 8.2% when compared with the same month a year earlier.

Fuel stores contributed negatively to the amount spent and quantity bought, both at negative 0.2 percentage points.

Non-food stores also contributed negatively to the amount spent and quantity bought, at negative 0.1 and negative 0.2 percentage points respectively.”