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EUR/DKK Above The Central Rate, But Only For A Brief Period

Published 09/18/2018, 02:14 AM
Updated 05/14/2017, 06:45 AM

EUR/DKK has risen above 7.46038 for the first time since 2016.

We forecast EUR/DKK to decline to 7.4525 in 3M (NYSE:MMM) and trade at 7.4550 on 6-12M.

We recommend DKK based clients with a hedging mandate and EUR assets and/or receivables hedge in shorter-dated FX forwards, e.g. in 3M.

Above 7.46038 for the first time since 2016

EUR/DKK has moved above the central rate of 7.46038 for the first time since early 2016. As we wrote in FX Edge - Good reasons for higher EUR/DKK spot rate , in our view, the rise in EUR/DKK this year is owing to weak returns on Danish investors' foreign assets this year, deteriorating terms of trade, e.g. due to escalation of global trade war and higher negative carry on short EUR/DKK positions due to easy DKK liquidity (Chart 1).

That said, sustained trading around the 7.4600 level is not fully justified by these factors in our view. Bond yields have stabilised and the US stock market has risen in recent months. Furthermore, EUR/DKK FX forwards have stabilised. We therefore forecast EUR/DKK to fall back to 7.4525 on 3M. In our view, we would have to see DKK negative flow from the corporate side to justify continued trading around current levels. On 6-12M we forecast EUR/DKK at 7.4550 on the risk of easy DKK liquidity and FX forwards move lower - see DKK FX/FI Strategy - The new Danish budget could be a big deal for DKK in 2019 .

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