EUR/NOK. Since the summer, we have argued that the potential for a further EUR/NOK move lower in 2017 was increasingly limited on the back of, for example, the outlook for relative rates, the oil price, seasonality and speculative positioning. With the latest set of disappointing economic data releases out of Norway, we think this case has been strengthened. In addition, the 2018 fiscal budget was a potential NOK positive but at a fiscal impulse of 0.1pp it turned out neutral. We maintain EUR/NOK is a range play in the very near term but still pencil in upside for the cross going into year-end. We now forecast the cross at 9.40 in 1M (unchanged), 9.50 in 3M (unchanged), 9.20 in 6M (9.10) and finally 9.10 in 12M (9.00).
EUR/SEK. In our view, a significant fall in EUR/SEK would require sufficiently strong inflation readings, a less dovish stance by the Riksbank and indications that the ECB is getting closer to the exit door. The SEK is trading weaker than the Riksbank's forecast, which may indicate that the currency market is not positioned for any sudden hawkish shift in monetary policy. We had expected CPIF to run above the Riksbank for the coming year but following the September print last week, it runs at/below the Riksbank. Hence, we raise the EUR/SEK profile somewhat. Perhaps the SEK rate reflects some concern about the risks associated with the housing market. We expect the Riksbank to end QE in December. We also expect the ECB to take another baby step towards an exit. On balance, we forecast EUR/SEK at 9.50 in 1M, 9.50 (9.40) in 3M, 9.40 (9.30) in 6M and 9.30 (9.20) in 12M.
EUR/DKK. We expect EUR/DKK to trade around 7.4425 on 1-6M (1-3M revised up from 7.4400 and 6M revised down from 7.4450). Next year, we look for some positive spill over from a higher EUR/USD and forecast the pair at 7.4450 on 12M (unchanged). Following an uncertain outcome of recent political events in Europe - for example, the German election and Catalan referendum - focus may turn to the Italian election set to be held at the latest in May next year.
EUR/USD. We see EUR/USD around current levels on a 1-3M horizon with a key near-term risk being the appointment of a more hawkish Fed Chair. We continue to stress that a 2018 rebound towards 1.25 is on the cards and that upside risks dominate the longer-term outlook. We have lowered our 1M and 3M forecasts to 1.17 (1.19) and 1.18 (1.19), respectively, but keep our forecast in 6M unchanged at 1.22 and in 12M at 1.25.
EUR/GBP. We see little prospect of EUR/GBP breaking below 0.87 on a Bank of England (BoE) rate hike in November as this is highly anticipated in the market already. We still see EUR/GBP trading in the range of 0.87-0.90 in coming months and we target 0.88 in 1-3M (0.87). Uncertainty regarding Brexit negotiations should keep GBP undervalued and volatile for longer but as clarification on Brexit negotiations improves, we still see potential for a further decline in EUR/GBP. We target 0.87 in 6M (0.86) and 0.86 in 12M.
USD/JPY. Market pricing suggests that the general election in Japan on 22 October should not have a significant impact on USD/JPY if Shinzo Abe maintains his majority in the Lower House. However, we still see USD/JPY moving higher in coming months supported by strong global PMIs and a potential Fed rate hike in December. We target the cross at 113 in 1M (111) and 114 in 3M. Longer term, the case for a moderately higher USD/JPY remains intact, driven by Fed-Bank of Japan divergence, higher global yields (eventually) and portfolio outflows out of Japan. We target USD/JPY at 115 in 6M and 116 in 12M.
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