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Market Insights

EUR/NOK forecast and analysis

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EUR/NOK has been trending lower and could see more weakness over the longer term. A summary of the fundamentals, sentiment and technical levels to look out for below.

The Norges Bank increased the key rate to 0.75% today, as expected. The new rate path from the central bank indicates seven more rate hikes until end-2023 which we can see on the chart below which compares the bank’s March predictions updated from December.

EUR NOK daily Chart

The upward adjustment in rates are in reaction to a strong economy and rising inflation. Many companies are at full capacity utilisation and are having difficulty finding workers which is reflected in higher wage growth. Other positive factors in terms of the economy are higher oil and gas prices, as well as rising house prices. The Norges Bank now expects a positive output gap and core inflation above the 2% target throughout the forecast period into 2025.

This indicates the rate rises to a level above the neutral level (The neutral level is seen as 1.7% by Norges Bank). So we have a hawkish Norges Bank but a cautious ECB.

A Hawkish Norges Bank But a Dovish ECB

The ECB is likely to put growth risks over inflation risks going forward due to the fallout from the Russian invasion of Ukraine which has hit economic growth and has raised the odds of a recession in the zone. The ECB have indicated they will be patient in terms of raising rates going forward.

ECB President Christine Lagarde said that any increase in the ECB policy rate will be gradual and come only "some time" after its bond-buying programme ends in the third quarter. Money markets are discounting increases of nearly 50 basis points to the ECB's deposit rate by the end of this year but this might be optimistic as most ECB members remain cautious.

For example, Dutch central bank chief Klaas Knot who is normally seen as hawk, said recently that he anticipates only one rate hike this year after the central bank brings its bond purchases to an end.

The Norwegian krone is among the best-performing currencies since the start of the Ukrainian conflict and likely to remain so even with a peaceful resolution to the Ukraine conflict, energy prices are likely to remain elevated going forward which will be supportive of the Norwegian economy and the NOK.

Technical Analysis

We are trending lower on both the daily and monthly charts and in terms of levels of support and resistance to watch On the monthly chart we have levels of resistance at 9.70 then 9.78 and major levels of support at 9.00 then 8.500. On the daily chart we have resistance levels at 9.66 then 9.70.

EURNOK MONTHLY chart

EURNOK daily chart

Scaddon Analysis:
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Not investment advice. Past performance does not guarantee or predict future performance.

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