EUR/NOK. The NOK has suffered from the recent sell-off in risky assets. Meanwhile, looking ahead we still see a solid fundamental case for why the NOK should strengthen. First, higher and broader-based Norwegian growth allows for the undervalued NOK to move higher. Second, speculative positioning in our view remains a NOK positive. Third, the significantly positive terms-of-trade shock that Norway experienced with rising oil prices last year is not yet reflected in the currency. Fourth, relative rates will in our view become a EUR/NOK negative this year via both Norges Bank (NB) and tighter global USD liquidity. Finally, the global growth picture remains supportive. We leave our forecast profile unchanged at 9.50 in 1M, 9.40 in 3M, 9.20 in 6M and 9.10 in 12M.
EUR/SEK. Our relatively bearish view on the SEK is based on two fundamental stories. First, the inflation outlook, which is on a downward slope and for CPIF ex energy - the core measure - well below the Riksbanks estimate from April onwards. Second, growth momentum, which is deteriorating markedly in 2018 on the back of house price deflation and the slowdown in the housing investments. Both these arguments suggest that the Riksbank will not raise rates this year and not as quickly as the market is pricing in and the Riksbank indicates for coming years. We stick to our forecast profile, where we see EUR/SEK at 9.90 in 1M, 10.00 in 3M, 9.90 in 6M and 9.80 in 12M.
EUR/DKK . Fundamentally, not much has changed for EUR/DKK, but volatility has been on the rise recently due in part to idiosyncratic factors. This is likely to continue for the next couple of months. We maintain our forecasts for EUR/DKK at 7.4450 on 1-6M rising to 7.4475 on 12M.
EUR/USD. Until early February this year has been about a continued EUR rebound on the back of the ECB, and USD weakness driven by a shift in the US policy mix (widening deficit, reluctant-to-hike Fed). The US-driven reflation story may have temporarily changed this, which could halt the uptick in EUR/USD near term where we see the pair staying broadly within the 1.21-1.26 range. Our medium-term story remains unchanged though: a turn in the capital tide from USD to EUR is brewing as the relative attractiveness of EU versus US assets is on the rise. Along with valuation, this is set to support EUR/USD in 6-12M. We have kept our 12M forecast unchanged at 1.28 but lifted our near-term profile to 1.23 in 3M (previously 1.19) and 1.25 in 6M (previously1.23) while we target 1.22 in 1M.
EUR/GBP. We expect the combination of higher UK interest rates and Brexit clarification to move GBP gradually away from fundamentally undervalued levels. In particular, as we now expect the BoE to 1out-tighten the ECB in the coming 12 months, the case for a lower EUR/GBP has strengthened and on 8 February, we lowered our EUR/GBP forecasts to 0.87 in 3M, 0.86 in 6M and 0.84 in 12M.
USD/JPY. We expect the combination of portfolio flows, choppy market conditions and stretched short speculative JPY positioning to push USD/JPY lower going into fiscal year-end in Japan (on 31 March). We have thus revised our 1M and 3M forecasts lower to 104 in 1-3M (previously112 in 1M and 113 in 3M). Over the medium term, we expect USD/JPY to recover gradually, supported by continued solid global growth outlook and Fed-BoJ divergence. We target the cross at 108 in 6M (previously 114) and 110 in 12M (previously 114).
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