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Macro and Vol Commentary

The Norwegian krone has been weakening in the last couple of weeks, with the current levels below those projected by the central bank. What is the near term outlook for the EURNOK pair?


  • The Norwegian economy has mostly recovered from the impacts of the COVID-19 crisis.
    • The economy grew at 1.1% in Q2, above Norges Bank expectations.
    • Industrial confidence picked up to the highest level since 2007.
    • The outlook remains positive, as the economy raised its prediction for 2022 economic growth to 4.1% from 3.4%.
  • Unemployment has dropped sharply as the economy began to reopen.
    • At the same time, the number of vacancies is at record highs, and signs of mismatch in the labour market are emerging.
  • While core inflation has eased to 1.1%, well below the central bank's goal of 2.0%, it is expected to pick up again due to the increased economic activity.
  • A strong rebound driven by consumer spending has encouraged the hawkish stance of policymakers.
  • In August, Norges Bank kept the rate on hold at a record low of 0.0%, but the policy rate is more likely to be raised in the next meeting at the end of September, sticking to its schedule despite a recent rise in the number of infections.
    • Indeed, Norges Bank said it expected to raise rates four times over the course of 12 months, reaching 1.0% by mid-2022.
    • In comparison to other counterparts, Norway is focused on using interest rates as a tool for tightening monetary policy, avoiding the need for sub-zero policy measures.
    • This has been aided by the country's $1.4tr wealth fund to support the recovery.


  • The European economy bounced back by 2.0% q/q in Q2 after having contracted in the previous two quarters, as the COVID-19 outbreak waned, vaccinations accelerated, and governments eased restrictions.
  • So far in Q3, the economy continued to recover, albeit at a slower rate.
    • The manufacturing PMI fell from 62.8 in July to 61.5 in August, a six-month low; meanwhile, the services PMI remained unchanged at 59.7.
  • Going forward, growth will depend, in part, on how the recent outbreak of the virus unfolds and how governments respond to the latest surge in infections.
  • Continued economic recovery is expected, however, inflation continues to run high, with the latest figure at 3%, a 10-year high.
    • Supply-chain bottlenecks have disrupted industrial production but are unlikely to derail the recovery.
    • Policymakers believe that the surge will be temporary, with the medium-term goal left at 2%
  • High inflation coupled with strong economic recovery has brought into light the question surrounding the slowdown of bond purchases under the emergency programme.
  • An initial debate will take place next week on whether to keep up an elevated pace of debt buying.
  • So far, the ECB has taken a more cautious approach than other central banks, keeping policy ultra-loose to cushion Europe's rebound.
  • As for the interest rates, the ECB pledged in July that it would not raise interest rates until inflation rates of 2% come sustainably into sight. Policymakers maintained an earlier promise to keep buying bonds until before the first hike.

Whilst the hike in interest rates in September is likely to benefit krone in the short term, we need to see some improvement in the economy’s growth outlook as well as risk sentiment. The government’s response to new the continued spread of the delta variant is key and adds a degree of uncertainty despite the strong growth base we have seen in the past couple of months. While bond purchases tapering by the ECB might give the boost to the euro, the hike in interest rates in Norway should carry more weight for the country's monetary policy outlook. 

Volatility Commentary

We’ve recently seen short term EURNOK vols realise over implied and EURNOK rise amidst a slip in oil prices. We’ve seen spot come back a bit and the Norges Bank has signalled it will likely raise rates in this month’s central bank meeting with quarterly hikes expected till mid next year. We’re expecting as macro-economic sentiment and re-opening continues in the next few months and in the midst of NOK rate hikes we’d see EURNOK head lower and we favour positions benefiting from EURNOK down and slightly long gamma/vega positions.

EURNOK 1-month Realised and Implied Volatility

EURNOK Trade Idea

  • Buy 3-month EURNOK Put Spread in 10m USD a leg with strikes 10.20 & 10.00 for circa 61k EUR (note 10.20 Put alone costing 103k EUR)

Positioning Charts

USDBRL NDO Positioning Data 19/08/2021 - 26/08/2021

Option volumes for USDBRL were marginally stronger in the week to September 2nd, however, there is no clear cluster of options around a particular spot. As we move further into October, there is a greater amount of put options due to expire below the market, with higher notional volumes. Likewise, the number of calls increased at the end of August. We expect the USDBL trend to remain intact.

USDBRL NDO Positioning Data 26/08/2021 - 02/09/2021

USDCNY Vanilla Positioning Data 19/08/2021 - 26/08/2021

Positional data for USDCNY in the week ending September 2nd show a reduced appetite for calls with a lower number of contracts approaching expiry. A cluster has formed around 6.50, with a greater number of puts to calls around that region. There is a band of put and call options due to expire in the first weeks of March with large notional values, which could give the CNY more traction in the long run and therefore see USDCNY weaken. Near term, momentum suggests we could see USDCNY weaken given the lower number of calls, but as we move towards the later expiries, CNY momentum could resume.

USDCNY Vanilla Positioning Data 26/08/2021 - 02/09/2021

EURNOK Vanilla Positioning Data 02/07/2021 - 02/08/2021

There were more call options executed for the month to September 2nd, which suggests growing appetite in the market. This could suggest the recent softening could pause in the near term, with the call option cluster forming closer to the 10.5 level. This also suggests we could see EURNOK strengthen in the near term, supported by a lower notional volume of puts to expire in the latter part of September.

EURNOK Vanilla Positioning Data 02/08/2021 – 02/09/2021

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 strengthened marginally in the last couple of sessions after rejecting prices below 6.57, with current levels now at 6.63. The stochastics are rising, with %K in the overbought territory, seeing no signs of abating and MACD diff is positive and diverging, suggesting we could see index push higher in the near term. A breakthrough of resistance at 6.69 to 50 MA of 6.6926 would confirm further bullish momentum. On the downside, a break back below the trend support of 6.58 could confirm the change of trend. Indicators point to a continuation in positive momentum and rejection of prices below 6.57 points to further strength in the index in the near term.

The Dollar Index 

The index has weakened below the support level of 92.50; the market closed at 92.43. The fall below the 92.35 level could pave the way for a challenge of 76.4% fib level at 92.24. The MACD diff is negative and converging, suggesting waning downside pressures for the prices. RSI has risen marginally, and %K stochastic is oversold – a strong sell signal. On the upside, the index needs to gain a footing above yesterday’s high of 92.50, which could set the scene for a 61.8% fib level at 92.52. The indices suggest further downside momentum, but if the index corrects to the upside and breaks through previous day resistance, we could see prices trend higher.


The pair has improved in recent sessions but found resistance at 10.30 and now stands at 10.28. The stochastics are converging in overbought as the MACD diff is positive and converging, suggesting we could see the pair push lower in the near term. The index needs to hold above 10.30 before targeting 50 MA at 10.33. The reaffirmation of support at that level and a test of 100 MA at 10.38 would suggest strong upside potential. On the downside, rejection above 10.30 could trigger a break of support at 10.24 towards 10.19, the recent lows. We expect the pair to soften in the near term, with 50 MA providing strong resistance. 



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