Norges Bank was slightly less dovish than markets expected today
Technicals and positioning support a downward move in EUR/NOK
Fundamentally, we are bearish on EUR/NOK on growth, carry
Strategy
At today’s meeting, Norges Bank (NB) was slightly less dovish than markets expected. In the press release, NB gave no indication of any imminent change to the strategy published in the latest MPR from September. Domestic growth and inflation have been as expected, and lending margins have been cut. Hence, we still expect NB to be on hold for a long time. (see Flash Comment – NB less dovish than expected; focus turns to oil prices). We believe that NB and the gradual stabilisation in prices could be the trigger for a downward leg in EUR/NOK. Technically, short-term momentum indicators are rolling over from overbought territory, warning of further losses. We believe that positioning is broadly square in EUR/NOK after the recent up-trend. Foreign banks (a proxy for speculative flows) have over the past two weeks been net sellers of NOK worth a combined NOK12bn – 70% of which was attributed to last week’s FX purchases. Our short-term fair value model for EUR/NOK of 8.33 is slightly below current spot.
Fundamentals
Fundamentally, we are bullish on NOK on growth outperformance and carry. We think Norway can live with lower oil investments. We expect Norway’s GDP growth to be 2.4% in 2014 and 2.2% in 2015 due to higher public expenditure, rising residential investments and easy credit conditions (see FX Edge – Why Norway can live with falling oil investments). We expect relative growth and carry to support NOK in a world of low global growth and zero interest rates. We forecast EUR/NOK at 8.25 in 1M and 8.10 in 3M.
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