USD/NOK ascending on market reaction to US CPI, rate cut forecasts in spotlight

• The USD/NOK advances modestly, showcasing 0.20% gains, gravitating around the 10.975 level.
• Markets are betting on sooner rate cuts by the Fed in May after November CPI.
• US bond yields dropped across the board.

During Tuesday's trading session, USD/NOK experienced gains, currently trading around the 10.975 level. Despite the pair holding strong, its upside potential may be limited as the markets are seeing sooner rather than later rate cuts by the Federal Reserve (Fed) after the release of inflation figures from the US.

November in the US saw predicted inflationary dips, as shown by the Consumer Price Index (CPI), which only rose a slight 0.1% monthly. Year-on-year inflation dropped marginally to 3.1% from 3.2% in October, with the core inflation figure, excluding volatile components, steady at 4% annually.

For Wednesday's Fed meeting, markets anticipate the bank will maintain the rates at 5.5%, but attention is set to economic and rate predictions to determine when the easing cycle will start. In the meantime, the bank authorities continued to stress that their decisions hinge on data, pointing out that they require more proof of an economic slowdown before rate cuts begin. For November and October, inflation decelerated while the labor market has yet to show signs of cooling down, which may be the only factor that makes the Fed not call a victory on inflation.

Ahead of the decision, the US Treasury yields are declining. The 2-year rate is currently at 4.71%, while the 5 and 10-year yields stand at 4.25% and 4.23%, respectively. This decrease in yields could add pressure on the USD and limit the upside for the USD/NOK.

USD/NOK levels to watch

The daily chart suggests that the pair has a bullish resonance with the Relative Strength Index (RSI), showing positive dynamics in the chart. The positive slope and positive territory of the indicator are indicative of a strong buying momentum, overpowering its selling counterpart. In addition, the Moving Average Convergence Divergence (MACD) corroborates this bullish indication as it prints rising green bars, signaling the buyers are getting the better of the sellers.

Exhibiting similar progression, the pair stands tall above the 20,100,200-day Simple Moving Averages (SMAs), which insinuates that bulls are firmly in command of the broader time horizon.

Support Levels: 10.900, 10.870, 10.800 (20-day SMA).
Resistance Levels: 11.015, 11.075, 11.105.

USD/NOK daily chart