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July 23, 2023

1) Chart – Upward trend for previous two months, having a 2.5% price range in local peak to troughs with a well contained channel from 13.1 to 14.06

2) Fundamentals -  Positive Carry of 4%.

NOK: Norges Bank expects the terminal rate to be 4.25%

In June, NB proved to be courageous and sent out another restrictive signal ahead of the summer break. It hiked the key rate by 50 bps to 3.75% and signalled a further rate step for August. It expects the terminal rate to be 4.25%. If inflation remains stubbornly high it is quite possible though that Norges Bank takes even further action and that the terminal rate will be even higher in the end.

A lot can happen until then though. But high price data in conjunction with economic data that points towards a reasonably robust economy are likely to principally support NOK in view of Norges Bank’s determined approach as this increases the likelihood of a higher terminal rate.

JPY: Japanese PMIs from July showed that the economy is holding resilient in contrast to the economic downturn seen in the region. The Jibun Bank Services PMI released by Markit Economics remained steady at 52.1, while the Manufacturing Index fell slightly to 49.4. Regarding the Bank of Japan's (BoJ) decision on Friday, markets expect to steady its dovish policy and raise its FY23 core inflation forecast to 2.5%. According to several analysts, the Yield Control Curve (YCC) policy will likely come under scrutiny in October with liftoff to be seen in 2024.

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