EUR/NOK. We think that Norges Bank initiating its hiking cycle marks an important fundamental trigger for sending EUR/NOK the next leg lower. Meanwhile, we still emphasise that the headwinds that we have been highlighting over the past months - not least weaker global growth, a stronger USD and improved structural NOK liquidity - remain present, which limits the downside potential. We 'roll' our forecast profile, lowering our 1M forecast to 9.40 (from 9.60) and our 3M forecast to 9.30 (9.40). We leave our 6M and 12M forecasts unchanged at 9.30 and 9.20, respectively.
EUR/SEK. Our 1M 10.20 has been breached on the back of inflation data that is 'OK-ish', the Riksbank staying on track for now and continued, broad-based EUR weakness. We are currently near-term neutral on EUR/SEK but we do look for a wider range over the summer. We still think the Riksbank will postpone the first hike beyond 2018 and that this will weigh on the SEK later in H2. On balance, we lower our 1M forecast to 10.10 (10.20), 3M to 10.20 (10.30), 6M to 10.40 (10.50) and leave the 12M forecast at 10.20 (unchanged).
EUR/DKK . Over the coming year, EUR/DKK will be in the hands of government finances (as that will be the determining factor for DKK liquidity and thus EUR/DKK FX forwards) and the political situation in Italy. We forecast EUR/DKK to stay around 7.4450 on 1-6M and to fall to 7.4425 on 12M (all unchanged) as there is a clear possibility that relatively tight liquidity will continue to support DKK into next year.
EUR/USD . Short term we think the USD positives (carry appeal of USD, ECB on hold for an extended period, Italian debt risks) will dominate the longer-term EUR positive impulses stemming from valuation and a turn in capital flows. Specifically, we expect EUR/USD to trade broadly within the 1.15-1.21 range over the next 6M period. But our medium-term story remains unchanged: the capital outflows of recent years will fade as we move closer to the first ECB hike. Alongside valuation, this is set to support EUR/USD in 6-12M. We continue to see EUR/USD at 1.17 in 1M, 1.17 in 3M, 1.20 in 6M, and 1.25 in 12M (all unchanged relative to FX Strategy: EUR/USD lower for longer - but not forever , 8 June 2018).
EUR/GBP. Given that inflation is slightly lower and the unemployment rate slightly higher than projected in May, the probability of a rate hike in August has declined slightly. Hence, while we have kept our forecast unchanged we stress that risks are skewed to the upside relative to our 1M and 3M forecast at 0.88 and 0.8650, respectively. Longer term, we still expect EUR/GBP eventually to trade lower driven by Brexit clarifications and fundamental valuations. We target EUR/GBP at 0.84 in 6M and 0.83 in 12M.
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