NOK Year-End Weakness Creates Opportunities For 2019
Danske Markets | Dec 18, 2018 08:33AM ET
Despite little news, NOK has tumbled in recent sessions in thin markets
Fundamentally, we still see a solid strategic case for a 2019 NOK move higher
Investors should look for stabilisation to add longs, corporates to lock in exposure
The NOK has tumbled over the past couple of sessions in a remarkable move amid very little news, even though oil prices have continued to trade heavy. Some have argued that since Norges Bank (NB) halted its NOK purchases on Friday, it has removed an important buyer from the market for the rest of 2018. While this will have had a psychological effect - amplifying year-end vulnerability concerns in very thin markets - we still want to stress that the daily NB NOK purchase amount of 350m is minimal relative to the average daily turnover. In addition, historically there is little evidence that the NOK sustainably weakens following NB halting its NOK purchases at the end of December (Chart 1).
We still see a strategically strong case to position for a NOK move higher in 2019. Admittedly, our FX Top Trade recommendation of shorting EUR/NOK via a 3M (NYSE:MMM) seagull and buying the NOK/SEK spot outright from early December got off to a rough start (see FX Top Trades 2019 , 4 December). However, we think the strategic cases have been strengthened since inception by the Regional Survey (confirming strong growth outlook) and NB bolstering its signal of two rate hikes in 2019 (next due in March). We keep our constructive 2019 views on global growth, oil and equities despite the latest sell-off.
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