EUR/NOK. Once again, the NOK got off to a strong start to the year, as year-end underperformance was followed by year-start over performance amid investors returning to the market and global risk appetite rebounding. Going forward, we pencil in a stronger NOK based primarily on three factors: (1) relative growth and relative rates, (2) tighter structural liquidity and (3) a further stabilisation in global risk appetite and a higher oil price. We leave our NOK forecasts unchanged at 9.60, 9.50, 9.40 and 9.30 in 1M, 3M (NYSE:MMM), 6M and 12M, respectively.
EUR/SEK. The December rate hike has not had the positive effect we envisaged, which is probably due to the board's dovish communication coupled with weaker Swedish macro data. In addition, we see the SEK being used as a funding currency in carry trades. As long as this continues, the EUR/SEK uptrend is your friend. That said, a lot of macro negativity has been priced in as forecasters have already revised their growth forecasts to sub-trend and the pricing of the Riksbank is very cautious, especially versus the ECB. Hence, we feel that the recent, and to us unexpectedly aggressive, rally has gone a bit too far. On balance, we raise our forecast profile to 10.40 (10.20) in 1M, 10.40 (10.10) in 3M and 10.20 (10.00) in 6M and 12M. Taking into account the recent overshooting, the forecast reflects a relatively neutral view on the SEK, where a break of 10.00 is still far off, in our view.
EUR/DKK peaked in December and early January and has since headed lower. As equity markets recover, DKK will see support from a rebalancing of FX hedges by domestic investors. At the same time, low front-end rates due to the high net position will slow the pace of DKK appreciation. We forecast EUR/DKK at 7.4620 in 1M, 7.4580 in 3M and 7.4550 in 6-12M.
EUR/USD. Carry momentum for USD is fading on the back of the Fed's soft rhetoric and even if another rate hike or two is in the cards, we do not think this will be a major source of dollar support. We have for some time argued that the next big move in EUR/USD will be higher as monetary policy divergence fades and the cross is undervalued. While a Fed that is now effectively on hold has been the first stage, we think the next trigger for a continued rebound will be a US-China trade deal. Whether the ECB will fuel a third stage in this rebound remains an open question, but a first hike looms as a key EUR-supportive factor. For now, 1.15 should act as an attractor for the cross. We have left our forecast profile unchanged and thus continue to see EUR/USD at 1.15 in 1M, 1.17 in 3M, 1.20 in 6M, and 1.25 in 12M.
EUR/GBP. Our EUR/GBP FX forecast is based on our main scenario that UK Prime Minister Theresa May's Brexit plan will be approved by parliament eventually. We expect this to pave the way for a significant decline in EUR/GBP. We target 0.84 in 3M and 0.83 in 6-12M. However, it is a close call, and we would like to emphasise that the key risk to our bullish GBP view is if Brexit clarifications are dragged out - even beyond 30 March if Article 50 is extended - and that GBP appreciation would consequently be much more moderate and materialise later than our forecast (main scenario) implies.
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