• Despite hot inflation readings from Norway, the Fed’s hawkish stance limits the downside.
• Markets are gearing up for next week’s US CPI reading which may likely set the pace of the pair.

The USD/NOK pair is trading with mild losses around 10.85. The Federal Reserve's (Fed) hawkish approach seems to be aiding the USD, while strong economic recovery signals in Norway aren't offsetting this impact on the NOK. As the American calendar remains empty, all eyes are on next week’s Consumer Price Index (CPI) report from April from the US.

Norway's April CPI showed that the headline number rose to 3.6% year-on-year, which was slightly higher than anticipated, although it showed a slight drop from March's 3.9%. Meanwhile, the underlying inflation rate surprised by coming in at 4.4% year-on-year, two ticks higher than expected, and up from March's 4.5%.

Last week, the Norges Bank opted to maintain rates at 4.5% and highlighted the possibility of needing to sustain a tight monetary policy stance for a longer duration than previously anticipated, citing the current data trends. Markets are expecting only 50 bps of easing in the next 12 months.

On the US side, US Fed officials are keeping the hawkish bets steady and as for now, investors are delaying the start of the easing cycle to September.

USD/NOK technical analysis

The daily Relative Strength Index (RSI) for the USD/NOK pair remains largely within the negative territory. Today's reading is at 46.66, which suggests a somewhat bearish short-term outlook. Due to its fluctuation, with an initial high near-overbought conditions and a subsequent drop, the RSI indicates the potential for bearish pressure. However, the consistent presence within the negative territory also warns of a continuous downtrend possibility.

Simultaneously, the Moving Average Convergence Divergence (MACD) histogram strengthens this view. Rising red bars signify an increasing negative momentum, with sellers gaining a more dominant position in the market