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Macro and Vol Commentary

EURNOK has remained on-trend in recent months, with the currency testing appetite below ten recently. What next for the pair?

Norwegian Economic Data

  • COVID cases have been declining since the peak in March and now stand at 231 new cases as of June 15th. The central bank highlighted that high cases were restraining the economy in their March report, but this no longer seems to be the case.
  • According to Reuters data, Norway has administered 3.308m vaccines, enough to have about 30.9% of the country vaccinated, assuming everyone needs two doses.
  • The economy will benefit from higher oil prices, but demand is still weak as economies re-open and travel restrictions reduce. Assuming vaccination rates continue at a steady clip, more travel should be allowed in the coming months, with the likelihood of these restrictions being rolled back subdued.
    • In line with this, there is considerable spare capacity on the sidelines in the market; as consumption improves, we expect the oil supply to increase.
    • The forward curve for Brent confirms this as it is backwardation out to 2029
  • The current account balance for Norway in Q1 was 94.3bn, up from a revised 5.1bn in Q4 2020.
    • The economy will continue to benefit from oil exports in the near term, but climate agenda is a risk to the economy and sovereign wealth fund.
    • Norway's fiscal power due to the political structure and sovereign wealth fund will boost the economy.
    • However, ex-oil revenue Norway recorded its first budget deficit since 1994; as mentioned, the wealth fund can fill this void.
    • The Prime Minister injected support into the economy, which equated to 4.5% of GDP, and we expect around 3% of GDP this year, but the economy is showing vital signs of recovering.
  • GDP 0.3% in April with mainland GDP also at 0.3%, we expect GDP to trend higher in Q2 and Q3 the recovery takes shape. In our opinion, GDP will be 1% q/q in Q2 2021 and 2% q/q in Q3, with growth for 2021 as a whole at 3% y/y.
  • We expect the labour market to improve in the coming months, with unemployment having peaked in Q1 20201. In our opinion, demand for labour is strengthening, with unemployment declining to 4.4% in Q2 2021 and 3.7% in Q3 2021.
    • Consumer confidence is improving as households grow optimistic about the economy; as the labour market gathers, steam confidence will improve.
    • According to Norges Bank, wage expectations are forecast to reach 2.30% in December 2021, down from 3.2% in 2020, with annual wages growth to be 2.4% in 2021.
    • Labour participation and weaker labour productivity have prompted GDP per capita to decline in recent years; outside COVID-19, substantial employment benefits will reduce the incentive to work.
    • The output gap peaked in June 2020 at 5.8% and recovered to -2.4% and -2.5% in Q3 2020 and Q4 2020. We expect the output gap to rebound strongly in 2021, aiding the country to recover quickly.
  • In recent months, inflation has been softer, with May's reading at -0.1% m/m, but the y/y figure stands at 2.7% y/y, moderately lower than April at 3%.
    • Underlying inflation is lower at 1.5% y/y, down from 2% in April.
    • Higher electricity prices have contributed to the rise in CPI.
    • The savings ratio has declined from 12.49% in 2020 to a forecast of 8.3% at the end of 2021; this will boost consumer spending.
    • However, data indicates that Norges Bank is expecting higher debt-to-income ratios in the coming years. The debt to income ratio could reach 244.18 in 2024 with an interest burden of 6.33.


  • Real money flows into NOK have been vital in the week to June 14th, up 4.07, with corporates, leveraged, and banks all negative.
  • The 1yr z-score of 4-week average flow for corporates stands at -1.16, with leveraged money at 0.99
  • The 65day correlation of daily flow vs currency return for corporates shows -34.5% vs leveraged at 17.6% and real money at 5.2%.

Norway's economy has recovered in recent months, while it still has a way to go, the signals are robust. Oil demand is heavily correlated with the global vaccination rate and the loosening of the economies. This is a boon for NOK and will strengthen their financial position even further as exports rise, the curve remains backwardated due to spare capacity in the market, but OPEC+ will maintain their output levels at historically high levels. Norway is expected to raise rates in H2 2021; this is being priced in now, but compared to the euro, we think they'll be one of the last to hike, so there is longevity in selling the EURNOK. The ECB has committed to maintaining low rates and APP at current levels to ensure a balanced recovery, the inflation argument is less prevalent in Europe, but we do expect the demand-pull side of inflation to be softer once employment benefits have stopped. We expect the trend to remain intact due to the prospect of higher rates in Norway and other countries currently importing inflation; we favour selling rallies in EURNOK and expect another break of 10 in the near term.

Volatility Commentary

Over the last few months, we’ve seen NOK strengthen as the Norwegian economy recovers with oil prices/demand return and with the gradual return to normality we’ve seen volatility realise lower than implied. Though we’ve seen EURNOK strengthen following Fed and Norges bank this week (no change in rates but more Hawkish outlook stated in both) we see the potential for EURNOK to continue the previous few month’s trend down with expectations for rate hikes in NOK later this year and both European and Norwegian economies continuing to normalise, we favour short vol/gamma positions and this level with potential for the trend of vols realising lower than implied continuing into the summer period.

EURNOK 1-month Realised and Implied Volatility

EURNOK Trade Idea 

  • Non-directional volatility trade
  • Sell 1-month expiry ATM Straddle for circa 7.30 vols
  • Delta hedge short gamma/vega position
  • Doing so in 10m EUR a leg (20m EUR total) gives circa 24k EUR Vega
  • Trade only suitable for investors with the capability to manage and delta hedge short gamma positions

Positioning Charts

USDBRL NDO Positioning Data 01/06/2021 - 08/06/2021

Options traded in the week to June 15th have less of an emphasis on puts, the puts with large notional volumes due to expire in July have reduced in size and there is a greater focus for options expiring in June. There is more upside cover this week after spot tested appetite around 5 and has now bounced off this level. Option volumes are still light and while there is more of a focus around spot in the week to June 15th, optionality is still low. We could see the market edge higher but the market is not expecting a move above 5.20 at this time, but there is little cover below 5.

USDBRL NDO Positioning Data 08/06/2021 - 15/06/2021

USDCNY Vanilla Positioning Data 01/06/2021 - 08/06/2021

In the week to June 15th there were fewer options executed and a narrower range, there are also fewer put options traded especially below 6.30. The calls traded remain within the same range and are of a lighter volume. After September there are few options traded, and there is exposure outside of 6.30-6.50 suggesting the market lacks conviction in the longer run. We expect the market to consolidate in the near term. 

USDCNY Vanilla Positioning Data 08/06/2021 - 15/06/2021

EURNOK Vanilla Positioning Data 15/04/2021 - 15/05/2021

There are fewer options traded in the month to June 15th, there is a greater emphasis on put options. The put options have a smaller notional value than the previous month there is a similar range traded. Options are focused around spot but there is a cluster of call options traded at above 10.5 but with little conviction. The market is positioned for EURNOK to weaken in the near term and we expect options to gain more exposure on the downside. 

EURNOK Vanilla Positioning Data 15/05/2021 - 15/06/2021

Charts and Tables

FX Expiries

Volatility Grid

Historical Spot FX Volatility (30D Rolling)

FX Matrix (today)

Weekly Change

Key Events & Releases

Technical Charts

JP Morgan Global FX Volatility Index 

The index has improved in the recent sessions and has breached resistance at 6.8 and closed at 6.81. The stochastics are rising, with %K/%D entering the oversold, and the MACD diff is positive and converging, suggesting we could see a push lower in the near term. The index needs to hold above the 200 MA level at 7.0125 before it could target the 7.0548 level. On the downside, the break back below 50 MA at 6.5982 could pave the way for a 6.40 support. The moving averages are edging lower, and the latest candle struggled above 6.88, suggesting we could see prices edge lower in the near term.

Dollar Index

The market has strengthened significantly in recent sessions after finding support at 90.00. The index is currently trading at 91.88. The MACD diff is positive and converging on the downside. Likewise, the stochastics are about to converge on the downside while oversold, outlining the outlook for growing selling pressure. The prices have been well supported at 90.51 in recent sessions before skyrocketing. Continued appetite above 92.00 could set the scene for higher prices back to 76.4% fib level at 92.22 – the mid-April highs. A break of support at 91.50 could set the scene for lower prices towards 91.30 in the near term. We expect the current support level of 50 MA to remain robust, but prices are expected to soften in the near term.


The pair has improved in the last week after finding support above all moving averages. The stochastics are rising in the overbought territory, and the MACD diff is positive and diverging, suggesting higher prices in the near term. Trend support has held firm, and to confirm the outlook of higher prices, the index needs to take out resistance at 10.24. This would help confirm the strong bullish momentum we have seen in recent sessions, with secondary resistance at 10.25. On the downside, rejection of the resistance level at 10.24 could trigger losses back through trend support to 10.15, confirming the double top formation. The index needs to take out the 100 MA at 10.12 in order to regain downside momentum. Neat term momentum favours the upside, but we could see prices fail into the 10.25 as apprehension in the market increases.



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