This week, despite being marked by other economic events, is very likely to show us oil initiating its slide down from its unsustainable OPEC-hysteria-induced rally. With oil at $40, American oil producers are igniting production again, in an already over-supplied market going out of storing capacity.
At the same time, two Fed board members are saying that a US rate hike should take place as early as April – which is likely to support the recovery that the USD has been trying to carve against oil and against other currencies, including commodity currencies.
Ridge Capital Markets believes that forex traders can make a profitable trade in the currency markets this week by shorting the USD/NOK currency pair. Norway is a strong oil-producing country which heavily relies on oil exports to keep its economy and budget balanced.
The NOK has staged a recent recovery against the USD, based on oil’s short squeeze and OPEC-boosted rally, and on Janet Yellen’s statements. However, Norway’s Central Bank is dealing with the low oil-price-induced shock by cutting rates last week, while warning that ‘zero is no absolute limit in rate-setting’. In this scenario, NOK weakness is highly expected, whereas USD strength is likely to come back.
Unlike the US, Norway is facing very heavy headwinds due to the oil crash, and, if oil does begin a correction while the USD begins its rebound, the NOK is likely to lose ground against the USD. That’s why we recommend forex traders to short the NOK/USD pair or go long the USD/NOK pair. We believe the USD/NOK can make its way back from its current 8.40 level to the 8.70 range, in a currency trade that is likely to reflect Norway’s particular characteristics and present situation in the context of the oil and USD performance.