Long NOK hasn’t worked the last few months

As one of my good friends, who is a very talented trader (@redheadtrader), told me earlier this year “lots of traders I know are camping out long NOK since 2020)” and that always stuck with me as the NOK has been so sensitive to global “risk on” flows.

You can see in the chart below, that trade was dead on through the COVID-19 lockdown and the 12 months following. However, the last 3 months have shown a divergence. As the S&P500 and crude oil have continued to carve out new highs on a daily or weekly basis since March, the long NOK crowd seem to have gotten a little trigger happy on their longs. The NOK is marginally stronger against the USD, but not by much. What is more important to me technically is the 200dma in the USDNOK which capped the rally this last week following the FOMC. That level comes in around the 8.700 price and to me that is the “line in the sand” for shorts.

I should also note (not pictured) that today’s highs in Crude Oil (WTI) reached the 161% Fibonacci extension (golden fib!) near the 74.50 level. We have dropped over $1 at the time of writing.

If you think stocks and crude have further to go, then short USDNOK is your trade as there is some catching up to do. On the other hand, if we break that 200dma in the USDNOK it could suggest that risk assets globally may come under pressure near term.