EUR/NOK correlation to oil will not break down despite the recent fall.
A higher oil price is good for the Norwegian economy long-term: short-term a stronger NOK creates headwinds.
Short- to medium-term NOK upside more limited than suggested by models.
Norges Bank to maintain dovish bias on weak growth and stronger NOK.
FX Outlook: we forecast EUR/NOK at 9.40 in 1M (unchanged), 9.30 in 3M (from 9.40), 9.20 in 6M (9.30) and 8.90 in 12M (9.00).
FX Strategy: we still like being short EUR/NOK in our FX Top Trades 2016 via a 9.00-9.60 risk-reversal (expiry 1 Dec 16). Leverage funds should consider selling 12M EUR/NOK straddles skewed to the downside: real money funds should lower hedge ratios on NOK assets and EUR and DKK denominated corporates should hedge NOK income via options.
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