EUR/NOK. The summer period has contributed to keeping the NOK weak, as thin liquidity and profit taking by foreign investors have acted as NOK headwinds. Meanwhile, we still believe in NOK appreciation over coming months and to us Norges Bank initiating its hiking cycle marks an important fundamental trigger for sending the overvalued EUR/NOK the next leg lower. Indeed, if we do not see this appreciation, we believe it would argue for even faster rate hikes, which we would expect to support the NOK in the absence of external shocks. In addition, we believe normalising liquidity should act as a NOK supportive factor in coming weeks. We leave our forecast profile unchanged and target EUR/NOK at 9.40 in 1M, 9.20 in 3M, 9.20 in 6M and 9.10 in 12M.
EUR/SEK. We remain bearish on the SEK following the July inflation numbers, which above all showed that core inflation of 1.3% undershot the Riksbank forecast. CPIF was one-tenth higher than forecast but is of less importance, as the Riksbank is likely to see through the energy noise. We are comfortable with our call of no hike this year and see EUR/SEK as a buy on dips. The SEK is not only about monetary policy and macro though but also about poor global risk sentiment and a messy Swedish general election. In our view, this is a cocktail for heightened FX volatility and a headwind for the SEK. We see EUR/SEK at 10.50 (previously 10.40) in 1M, 10.60 (previously 10.40) in 3M, 10.50 (unchanged) in 6M and 10.20 (unchanged) in 12M.
EUR/DKK is relatively more exposed to an escalation in the global trade war, as the Danish economy is small and very open and has significant exposure to global shipping. Furthermore, Denmark has net exposure to the stock market due to, in particular, the Danish life and pensions sector's large holdings in US and euro area stocks. This, in addition to the easier DKK liquidity situation and negative FX forwards, helps to explain the recent rise in EUR/DKK above the 7.4500 level. We maintain our forecasts and expect the pair to trade around 7.4525 in 1-6M buoyed by the factors above, before falling back to 7.4475 in 12M, as DKK remains well supported by strong fundamentals.
EUR/USD . Short term, we think the relative-rate support to USD and EUR political risks will dominate, leaving EUR/USD in a sub-1.15 range but we see the cross staying above 1.10. However, in our view, the break of 1.15 on Turkey accelerated the recent fall and the Turkish risk premium should eventually fade and alleviate some of the downward pressure from USD carry near term. In addition, the relative cyclical picture may shift in favour of the euro area towards year-end and hold a hand under an otherwise strained pair. However, medium term, we expect the euro capital outflows of recent years to fade as the first ECB hike draws closer. Alongside valuation, this is set to support EUR/USD in 6-12M. We lower our near-term profile due to the significance of the break of 1.15 and now see EUR/USD at 1.12 in 1M, 1.13 (previously 1.17) in 3M, 1.18 (previously 1.20) in 6M, and 1.25 (unchanged) in 12M.
To read the entire report Please click on the pdf File Below: