We have revised higher our 1M/3M/6M and 12M EUR/NOK forecasts to 8.25, 8.15, 7.90 and 7.80, respectively from 8.10, 7.95, 7.85 and 7.75, previously. The sharp fall in Crude Oil prices is a clear negative for the NOK and we expect prices to remain low in Q4. However, we still believe that the market is too bearish on Norwegian growth which will be supported by a booming housing market and easy credit conditions. EUR/NOK will fall when oil prices stabilize.
We continue to see downside potential in EUR/SEK over the medium term based on relative monetary policy, growth divergence and valuation. However, in the coming month, the Riksbank will come into focus and after the low September inflation numbers, we now believe it will go for another cut. This is likely to weigh temporarily on the SEK and we therefore raise our 1M target to 9.20 (from 9.10), but keep the 3-12M profile unchanged.
We expect EUR/GBP to trade lower in the coming 12 months, primarily driven by divergent growth and monetary policy. We expect the EUR/GBP downside to unfold on a three-six month horizon, supported by a repricing of the UK money market and we target EUR/GBP at 0.78 in 3M and 0.76 in 6M (from 0.77 previously). In six-12 months time, we expect EUR/GBP to bottom out as a weaker euro should support a rebound in growth and inflation expectations. We now target EUR/GBP at 0.79 in 12M (0.76).
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