I suggest that traders short the Norwegian Krone against the USD for the following reasons:
/dx has broken out of its ~2yr consolidation pattern amid Trump's fiscal stimulus promises and subsequent repricing of the Fed's hiking cycle in anticipation of higher US growth and inflation.
NOK remains highly vulnerable to /cl as >50% of Norway's exports are energy-related (34% = crude petroleum and 25% = petroleum gases). Potential OPEC-inspired oil volatility and vulnerability (if a strong cut, or any cut at all, fails to materalise, which is my personal base case given recent rhetoric from Saudi Arabia; namely words to the effect of, "balancing can occur without cuts") will weigh heavily on NOK, sending this pair much higher.
On a more long-term level, oil and gas companies in Norway have drastically cut spending forecasts for 2017, deepening what was already a record reduction in offshore investment.
Main risk to the trade is OPEC cutting production significantly (or at least creating that perception to markets). In this case, I would use the opportunity to buy USDNOK at lower levels as any material increase in oil prices (to around $55-$60 on a 'strong cut') will enable US shale producers to "come online" (with lag, of course), aiding supply and sending /cl to near current levels again. It is very difficult to envisage a world in which oil comfortably sustains above $60 under current conditions. A token OPEC cut will not change this, I do not believe.
$DB is gunning for 9.05000 by Q2 '17; $GS and $MS also want around 9.00000 with time.
I personally look to buy this pair on dips.
/dx has broken out of its ~2yr consolidation pattern amid Trump's fiscal stimulus promises and subsequent repricing of the Fed's hiking cycle in anticipation of higher US growth and inflation.
NOK remains highly vulnerable to /cl as >50% of Norway's exports are energy-related (34% = crude petroleum and 25% = petroleum gases). Potential OPEC-inspired oil volatility and vulnerability (if a strong cut, or any cut at all, fails to materalise, which is my personal base case given recent rhetoric from Saudi Arabia; namely words to the effect of, "balancing can occur without cuts") will weigh heavily on NOK, sending this pair much higher.
On a more long-term level, oil and gas companies in Norway have drastically cut spending forecasts for 2017, deepening what was already a record reduction in offshore investment.
Main risk to the trade is OPEC cutting production significantly (or at least creating that perception to markets). In this case, I would use the opportunity to buy USDNOK at lower levels as any material increase in oil prices (to around $55-$60 on a 'strong cut') will enable US shale producers to "come online" (with lag, of course), aiding supply and sending /cl to near current levels again. It is very difficult to envisage a world in which oil comfortably sustains above $60 under current conditions. A token OPEC cut will not change this, I do not believe.
$DB is gunning for 9.05000 by Q2 '17; $GS and $MS also want around 9.00000 with time.
I personally look to buy this pair on dips.
Trade closed: stop reached
- Norway's fiscal expansion seems to be running out of steam and positioning is currently very long NOK aids the NOK bearish case.
- US shale producers are benefiting from sharply declining exploration costs, which will continue to weigh heavily on traditional Norwegian oil producers.