EUR/NOK . The NOK is caught between two stools. On the one hand, domestics have not been better for many years and accelerating growth with a narrowing output gap is the ideal cocktail for an undervalued currency such as the NOK. Meanwhile, challenging externals have been much more important for the NOK recently, which, together with stretched speculative positioning, were the primary drivers of the latest 30 figure move. As speculative positioning has become much more balanced and as the Fed delivered a 'dovish' hike, we think improving domestics could return EUR/NOK below 9.00 over coming months. The biggest risk factor to our call is a global risk-off event weighing on the oil price. We shift higher our EUR/NOK profile, forecasting the cross at 9.00 in 1M (from 8.90), 8.90 in 3M (8.80), 8.70 in 6M (unchanged) and 8.70 in 12M (unchanged).
EUR/SEK . The recent pickup in inflation and inflation expectations, coupled with speculation that the Riksbank is approaching a point where it will not add further stimulus, has been good news for the SEK. However, it is not time for the Riksbank to celebrate yet. We expect inflation to edge lower in coming months and our April estimate is well below that of the Riksbank. When this comes into play, it could weigh somewhat on the Swedish krona. We expect EUR/SEK to move only slowly and very gradually lower over the forecast horizon. We keep our 3M, 6M and 12M forecasts intact at 9.40, 9.30 and 9.20 and raise our 1M forecast to 9.50 (from 9.40).
EUR/DKK . EUR/DKK reached a new low under Governor Lars Rohde in February at around 7.4330. This led Danmarks Nationalbank (DN) to sell DKK5bn in FX intervention. In our view, the market is likely to be reluctant to buy EUR/DKK this year, with high uncertainty attached to the outcome of multiple political events in Europe. We forecast EUR/DKK at 7.4350 in 1M and 7.4400 in 3-12M. EUR/DKK may see some temporary support in the final weeks of March, when Danish listed firms pay out the bulk of their dividends.
EUR/USD . We expect that EUR/USD is close to forming a base. In our view, relative rates remain EUR/USD bearish as the Fed is slightly underpriced and the ECB is priced too hawkish. However, it appears that clarity with regards to US tax reforms has been postponed towards later in the year and hence is less of a short-term USD positive. We believe that it is most likely that Le Pen will not become France's next president. Hence, in our base case France's election will not hinder a gradual rise in EUR/USD. Medium-term, we continue to expect EUR/USD to move higher on the large eurozone-US current account differential and the undervaluation of the EUR. In sum, we are 'rolling' our EUR/USD forecasts predicting the cross at 1.06 in 1M (1.04 previously), 1.08 (1.05), 1.10 (1.08) and 1.14 (1.12).
EUR/GBP . We still see potential for further GBP weakness in the near term ahead and after the triggering of the Article 50. We target EUR/GBP at 0.88 in 1M (0.87) and 0.87 in 3M but stress that the risk is skewed on the upside relative to our forecasts. Over the medium term horizon, we expect EUR/GBP to remain caught within the range of 0.84-0.88 targeting 0.86 on a 6M-12M horizon.
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