Gordon: Oil's Strength Could Be Dollar's Achilles Heel

Norwegian Oil Rig
Source: olf.no
Norwegian Oil Rig

As crude oil prices power higher, they are bringing the Norwegian Krone along with them. The dollar is another story.

According to the U.S. State Department, Norway “….is the world's sixth-largest oil exporter and second-largest gas exporter (2010), providing much of western Europe's crude oil and gas requirements. In 2009, Norwegian oil and gas exports accounted for approximately 50% of total exports.”

Because Norway is a major exporter of crude oil, the price of crude is highly correlated to the Norwegian currency as illustrated by this 240 MIN OVERLAY. With M.E.N.A (Middle Eastern and Northern Africa) tensions continuing to escalate, crude should continue to power ahead, thus strengthening the Krone. WTI NYMEX crude futures are currently trading $106.125, less than 1 USD from a 30-month high!

Now, oil can be also be a growth indicator that will push ahead with improved economic outlook, which would be accompanied with higher stock prices. However, this S&P OVERLAY shows that in recent weeks, and likely a result of geopolitical tensions, that is not the case.

We have been hot on the trail of the S&P 500 at this critical 1300 level, which should decide the fate of equity prices in coming sessions. However, as the second overlay chart above points out, the S&P 500’s break higher or lower from 1300 will likely not over-power the Crude/ Norway relationship. Crude prices through the key $107/bbl level will weaken the USD, strengthen the NOK, and we’ll have to see what happens to equities!

The USD/NOK 3 HOUR with CRUDE OVERLAY shows a rather bearish Elliott Wave count with downside targets of 5.500 and upside invalidation of 5.6100. Crude oil is overlaid in light gray showing a powerful bull trend in play.

This looks to be an attractive sell zone for dollar/krone.

Todd Gordon is the Co-Head of Research at Aspen Trading Group and a principal in Floyd, Gordon & Partners and a contributor to CNBC's Money in Motion Currency Trading.

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