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Crédit Agricole's models show the Norwegian krone is stretched and due a pullback, although a hawkish Norges Bank offers support.
Crédit Agricole's positioning and valuation models show the Norwegian krone is vulnerable to a setback, with investors having bought the currency heavily and pushed it above fair value.
In its weekly FX positioning update, the French investment bank says the krone has overtaken the Swiss franc as the most popular long position in G10 currencies, "our FX flow data points at banks and real money investors inflows, as well as corporates and hedge funds outflows. All in all, the NOK is in overbought territory," says Crédit Agricole.
The bank's PIX 3.0 model, its measure of investor positioning across G10 currencies, works on contrarian logic and bets against the most crowded trade.
It entered a long USD/NOK position at Monday's London fix, a trade that profits from a weaker krone.
The krone has already given back some ground: the Pound to Norwegian Krone rate trades at 12.4356, having rebounded from a low near 12.30 at the turn of the month.
The Euro to Norwegian Krone rate trades at 10.3788, up from a low near 10.25 over the same period.
Pound Sterling Live named the September low near 12.44 as the next support for pound-krone on 20 October, and the pair broke through it to reach 12.30 before Monday's rebound.
Above: GBP/NOK at daily intervals.
The rebound stalled near 12.50 on Tuesday, leaving pound-krone below the 12.78 high of early October and inside its downtrend from August.
Crédit Agricole's FAST FX model, its short-term measure of fair value driven by interest rate spreads and energy prices, sends the same signal for the krone against the euro.
"EUR/NOK is falling faster than its fair value becoming more than 2 standard deviations undervalued," says Crédit Agricole.
The signal comes from a secondary version of the model, with Crédit Agricole flagging its primary EUR/NOK model as unstable this week.
The same model also sees the pound as overvalued against the euro, with a reading close to the krone's.
Pound-krone draws a weaker signal from the model as a result.
Falling Oil Prices Test the Krone
Brent crude fell 11% on Monday on hopes of negotiations between the US and Iran, the first test of Crédit Agricole's call.
Norway is one of Europe's largest oil and gas exporters, so cheaper energy cuts its export earnings and the demand for krone that comes with them.
"Lower oil prices weighed on exporters such as NOK while supporting importers such as SEK," says a daily note from OCBC, the Singapore-based bank.
The euro rose 1.33% against the krone on Monday.
Brent trades near $103 a barrel on Wednesday, down for a third session.
Norges Bank Can Revive Krone Bulls on Thursday
Should Norges Bank stress its readiness to tighten again on Thursday, the krone would draw fresh support.
Investment bank analysts expect the central bank to hold its policy rate at 4.50%, after it raised rates in September.
SEB has lowered its 2026 growth forecast for Norway's mainland economy, "we project that the policy rate has peaked but risks are skewed to the upside in the near term as Norges Bank has signalled a readiness to act if the inflation outlook deteriorates materially," says the Swedish bank in an outlook update published on Wednesday.
The Bank of England also decides on Thursday, with investment bank analysts expecting a rate hike that would lend the pound support against the krone.
OCBC doubts the US-Iran talks will settle the oil market quickly, "until there is clearer evidence of a deal, markets are likely to remain focused on physical oil flows rather than diplomatic headlines," says OCBC.
Crédit Agricole's FAST FX model targets a 3.0% rise in USD/NOK from Monday's entry, with the pair at 9.217 today. It targets EUR/NOK at 10.4336, 0.5% above spot and in line with the 10.43 highs of Tuesday and Wednesday.
The krone needs a hawkish message from Norges Bank on Thursday to help krone push back against recent weakness and scupper the counter-trend tactical calls.
