The British pound gave back all of last week’s gains against the Norwegian krone on Friday, falling a hefty 1.15% as markets are reassessing possible outcomes of the UK general election set for December.
Meanwhile, UK Prime Minister Johnson said that Brexit will happen “very fast” and that a trade deal with the U.S. remains possible if his Conservative Party gets the most votes in the upcoming general election. Friday showed that markets are rather skeptical.
The latest Commitment of Traders report, published on Friday and covering changes in positions until last Tuesday, showed that investors were becoming increasingly bullish on the pound again. Net GBP shorts were but by $1.6 billion compared to the previous week, bringing the overall net short to $2.6 billion — the lowest bearish positioning since May.
The short-covering in sterling, fueled by markets expecting that a no-deal Brexit is off the table (for now), likely had a major role in the recent upturn in the GBP/NOK pair. However, Friday’s sharp U-turn in the krone’s strength also aligned with a strong bullish day in oil, with Brent crude prices surging more than 2%.
This week, markets are also awaiting some important reports which may lead to further volatility in the GBP/NOK pair. All eyes will be set on Thursday’s Bank of England inflation reports and monetary policy meeting, which is expected to hold rates steady at 0.75%.
From a technical standpoint, the fake upside breakouts last week combined with a strong bearish divergence between the price and the RSI were powerful reversal signals.
As of 7:00 a.m. London time, the GBP/NOK pair traded at 11.75, with the October 24 low of 11.69 still acting as an important support level to the downside. During the Asian session, the pair mostly remained flat, trading in a range between 11.74 and 11.76.