Could inflation differentials drive a CADNOK reversal?

The Norwegian Krone has been outperforming over the course of the past week, with yesterdays inflation reading bringing greater pressure on the Norges bank to raise rates further. Scope Market Chief Market Analyst Joshua Mahony looks at CADNOK as an interesting opportunity after a six-month period of strength. The divergence between Canadian and Norwegian inflation provides the basis for NOK strength, while the fact that both are positively correlated with crude oil allows us to strip out much of the risk that movements in energy impact the trade.

With price having broken through trendline support an completed a double-top formation, there is a good chance we could see the pair give back much of the strength seen in H1.