The big drop in oil prices over the past 8 months has created many winners and losers, but one of the biggest losers has undoubtedly been Norway. The northern European country derives around two-thirds of exports from oil from crude oil and petroleum products, representing 20% of GDP, so its economy is particularly sensitive to changes in the price of oil. Oil rallied strongly over the previous three days, but it is down over 8% today, raising fears that the downtrend has resumed. In acknowledgement of the drop in oil, the Norges Bank announced that it would increase its sales of krone on the open market to NOK 700M per day, a 40% increase from the previous level of NOK 500M per day.
Despite these seemingly-bearish catalysts, the NOK has not dropped nearly as much as oil itself. USDNOK is up just 420 pips today, compared to the 3,000 pip drop over the previous three days. The ongoing divergence between oil and the krone suggests that Norway’s currency may be in the process of forming a medium-term top.
Traditional technical analysis supports this view. USDNOK has now stalled out on three separate occasions off the 61.8% Fibonacci retracement of its entire 2000-2008 drop at 7.8540, and rates are testing 50-day MA support for the first time since August. The RSI is at a similarly low level, with the indicator pressing the bottom of its uptrend range near 40.
For now, traders are giving the established uptrend the benefit of the doubt, but if 50-day MA support at 7.45 gives way, a deeper retracement toward previous support at 7.30 or lower could be in play. That said, if USDNOK manages to break above strong resistance at 7.8540, it could reinvigorate the uptrend and target psychological resistance at 8.00 next.