Oil's kNOK-On Effect
Matthew Weller | Nov 13, 2014 03:45PM ET
The big story in global markets Thursday was yet another leg lower in oil prices. As my colleague Fawad Razaqzada discussed earlier, WTI oil was testing key support in the 75.00-76.00 zone, while the Brent contract was pressing against key psychological support at 80.00 ahead of the day’s crude-oil inventory data.
Interestingly, the report actually showed that inventories declined by 1.7M barrels, compared to a rise of 0.7M expected, but as always, the market reaction was more telling than the actual data. Both oil contracts dropped through their key support levels to new 4-year lows; as we went to press, WTI was trading down over 2.5% on the day at 75.00, with Brent down by a similar amount to 79.00. For now, the path of least resistance remains to the downside for oil and the recent downtrends may extend toward the lower-70.00s in both contract next.
Last week, we discussed the implications of the drop in oil for FX traders , concluding that oil-dependent currencies may extend their recent weakness. Not surprisingly, USD/CAD has caught a bit of a bid today, with the pair rising 60 points off its 50% Fibonacci retracement at 1.1300, and USD/RUB has also gained value today, though there are a number of other major crosswinds buffeting that pair for the moment.
USD/NOK: The kNOK-on Effect
However, USD/NOK may be the most interesting pair to watch if oil prices continue their drop. Norway derives nearly 70% of its exports from crude oil and petroleum products, representing 20% of GDP, so changes in the price of oil have a massive impact on the nordic nation’s economy. A look at the daily chart reveals that rates have not rallied in sync with oil prices thus far today, though the longer-term uptrend remains healthy.
More immediately, the pair has already put in two Bullish Pin Candles*, or hammers, this week, suggesting that buyers are eager to step in and support the pair on short-term dips. Meanwhile, the RSI indicator has pulled back from overbought territory (>70), potentially clearing the way for another leg higher heading into next week.
As we noted last week, the pair needs to break key previous / Fibonacci resistance at the 6.8630 level to pave the way for a continuation toward psychological resistance at 7.00 or even the 11-year high near 7.30 in time. As long as rates remain above bullish trend line support (currently 6.62) and oil prices remain under pressure, USD/NOK bulls will have the upper hand.
* A Bullish Pin (Pinnochio) candle, also known as a hammer or paper umbrella, is formed when prices fall within the candle before buyers step in and push prices back up to close near the open. It suggests the potential for a bullish continuation if the high of the candle is broken.
Get The News You Want
Source: FOREX.com
For more intraday analysis and market updates, follow us on twitter (@MWellerFX and @FOREXcom).
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.