There could be a sharp shock coming for EUR/NOK
July 24 (Reuters) -A fall in the oil price and possibly an overreaction to softer Norwegian inflation data has seen the crown weaken significantly versus the euro in recent weeks but the move is beginning to look overdone.
From a technical perspective the steep upswing in EUR/NOK since the middle of June, a 6.5% gain, risks toppling over. The reversal, when it comes, could be equally rapid and with magnitude.
The trend is showing signs of stress with the daily relative strength indicator massively overbought at levels above 77. Fourteen-day momentum is also at extreme levels. These indicators coupled with an acceleration in the cross to Tuesday's 11.9900 high point to increasing reversal risk.
If the cross turns lower there are Fibonacci retracement levels at 11.8182, 11.7119 and 11.6260, 23.6%, 38.2% and 50%, respectively.
Fundamentals still support a hawkish stance at the Norges Bank. Inflation has come lower but remains too high and the recent weakening of the crown brings the risk of Norwegian prices edging higher again.
The Norges Bank may well raise its rate path and a September rate hike should not be ruled out.
Against this technical and fundamental backdrop EUR/NOK's position at levels above 11.90 looks precarious and a trend reversal could be on the cards.
For more click on FXBUZ
EUR/NOK daily candle chart: https://tmsnrt.rs/4fen88O
(Peter Stoneham is a Reuters market analyst. The views expressed are his own)
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