The SNB's surprise removal of the 1.20 EUR/CHF floor has brought volatility back to global FX markets and this is likely to persist for a while as CHF markets learn about the SNB's new reaction function . Notably, the SNB will opt for a combination of interest-rate changes and intervention in pursuing its inflation target. We stress, however, that ECB policy will be crucial for EUR/CHF in the near term . Thus, EUR/CHF should head lower in the near term but drift higher once EUR weakness fades and the SNB faces the adverse effects of CHF strength on inflation and growth. We now project EUR/CHF at 0.99 in1M, 0.97 (prev. 1.21) in 3M, 1.00 (1.22) in 6M, and 1.05 (1.24) in 12M, but emphasise that the cross is likely to be choppy as markets learn about the new SNB regime. Needless to say, our CHF forecasts are currently surrounded by an extraordinary degree of uncertainty .
We have lowered our near-term EUR/USD forecasts to 1.14 (1.16) in 1M, 1.12 (1.14) in 3M, 1.10 (1.12) in 6M and 1.12 (1.17) in 12M as the market has taken advantage of some of the EUR weakness we expect on ECB easing in regarding the SNB exit as a pre-emptive move ahead of ECB . Besides the effects of ECB QE, more aggressive pricing of the Fed should support further EUR/USD downside in H1. We still see potential for a shallow rebound in EUR/USD later in the year, however, as a euro area recovery gains traction.
We have revised down our forecasts for EUR/DKK and now expect EUR/DKK to drop to 7.4325 on 12M, as Danmarks Nationalbank will use the fluctuation band while assessing the impact of the move from the SNB and the expected QE programme from the ECB.
We have lowered our EUR/NOK forecasts on our expectations of aggressive ECB easing and early signs that oil prices may be close to a bottom . EUR/NOK may fall further around the ECB meeting but it will bounce back ahead of the Norges Bank meeting in March. We now forecast EUR/NOK at 8.75 in 1M (9.25), 9.00 in 3M (9.40), 8.75 in 6M (9.00) and 8.25 in 12 M (8.50). There are no changes to our 3-12M EUR/SEK forecasts: we see the cross at 9.30 in 1M.
To Read the Entire Report Please Click on the pdf File Below