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Too Much of a Good Thing for USD/NOK

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Talking Points:

  • 2 Upside Targets Taken Out in Record Speed
  • Sudden Overbought Signals from RSI, Stochastic
  • The Most Prudent USD/NOK Strategy for Now

So far, November has been a good month for the US dollar (USD) against most currency counterparts, including the Norwegian krone (NOK). The dollar and US economy have both been supported by stronger macro numbers, and as a result, the two USDNOK price targets we highlighted on October 29 (6.05 and 6.20) were reached in a hurry.

See recent: A Potential Bargain Buy in USD/NOK

Now, having gone too far, too fast, USDNOK is overbought in the short term, as signaled by both the RSI and Stochastic indicators. This might favor some retracement or even a rough and sudden pullback in USDNOK in the coming days and/or weeks.

With that said, there’s always a train to catch when it comes to forex trading, and while USDNOK isn’t permanently out of play, traders must now exercise patience and find a better long-entry point that will offer more favorable risk/reward.

Technical Outlook for USD/NOK

USDNOK broke earlier highs around 6.13/6.15, which caused the pair to spike above 6.20 with lightning speed. As indicated below, both the RSI (above 70) and Stochastic (above 80) suggest that the pair has become overbought in the short term.

Guest Commentary: Technical Outlook for USD/NOK

Too_Much_of_a_Good_Thing_for_USDNOK_body_GuestCommentary_RafiulHossain_November12A.png, Too Much of a Good Thing for USD/NOK

Support: 6.13/6.07, 6.00/5.95, 5.80/5.83

Resistance: 6.20/6.25, 6.30, 6.50

Furthermore, this most recent move started from the lower 5.90’s without any pause and without forming a base for greater support on the way back. In that respect, we should be especially careful in upcoming days and/or weeks until both the RSI and Stochastic can return to normal levels in preparation for another possible leg up.

On the upside, we have established resistance at a yearly high around 6.25. If we manage to break and establish above this area, the next possible resistance is around 6.30 and then all the way to 6.50.

On the downside, we should find support around 6.15/6.13 and then again at 6.07, although it wouldn’t be a surprise if we went on to re-test the breakout area around 6.00 (former trend line).

In the long term, USDNOK has put in higher lows and higher highs, which favors a positive move in due time. In the short term, however, the current move seems a bit overstretched, but after a healthy retracement, we may well find a better long-entry point and more favorable risk/reward.

See also: A USD/NOK Move That’s Been Months in the Making

Fundamental Factors Impacting USD/NOK

Given the weaker Norwegian krone over the last couple months, we may see a boost in Norway’s export industry. Another effect could also be a higher consumer price index (CPI).

In the US, it remains to be seen whether the recent government shutdown will have a harsh negative impact on economic data. Even if so, that’s likely to be a short-term drag, but it could be just the catalyst USDNOK would need to pull back and present another reasonable long-entry opportunity.

Trading Conclusion

The long-term bullish case for USDNOK remains intact, but short term, a consolidation or even a harsh, sudden pullback is possible, so patience is a virtue for the time being.

Be on the lookout for a healthy retracement to possible support levels such as 6.07 or 6.00, areas where more favorable risk/reward opportunities could be available for new long positions.

Again, there’s always a train to catch in the FX market, but we all want to travel in first-class with minimal hassle and little downside risk.

By Rafiul Hossain, Guest Analyst, DailyFX.com

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EURUSD Weekly Technical Analysis: New Month, More Weakness

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What’s inside:

  • EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
  • Resistance in vicinity of 11825/80 likely to keep a lid on further strength
  • Targeting the low to mid-11600s with more selling

Confidence is essential to successful trading, see this new guide – ’Building Confidence in Trading’.

Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.

Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.

Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).

Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.

For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.

EURUSD: Daily

EURUSD Weekly Technical Analysis: New Month, More Weakness

—Written by Paul Robinson, Market Analyst

You can receive Paul’s analysis directly via email bysigning up here.

You can follow Paul on Twitter at@PaulRobinonFX.

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Euro Bias Mixed Heading into October, Q4’17

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Euro Bias Mixed Heading into October, Q4'17

Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.

EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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British Pound Reversal Potential Persists Heading into New Quarter

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British Pound Reversal Potential Persists Heading into New Quarter

Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.

GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

To be added to Christopher’s e-mail distribution list, please fill out this form

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