EUR/NOK. We think the short-term risks - not least up until the UK's EU referendum - remain skewed to the upside as the NOK is no longer a safe-haven currency and the oil price remains vulnerable to global demand shocks which a 'Brexit' would constitute. In our base case of a 'Bremain' we expect higher growth in Norway, a gradually higher oil price, a re-pricing of monetary policy post the final September cut and general valuation to send EUR/NOK gradually lower. We leave our forecasts unchanged.
EUR/SEK. The macro backdrop is supportive for the SEK but as long as the Riksbank is guarding against any 'premature' appreciation the downside potential is limited. Also risk aversion in a broader sense (e.g. global growth and stock market valuation concerns) is SEK negative. Our long-term forecasts are skewed to the downside, reflecting fundamentals. On balance, we raise our forecast path with 10 figures to 9.30 in 1M and 9.20, 9.10 and 9.00 in 3, 6 and 12M, respectively.
EUR/DKK. We look for EUR/DKK to stay low irrespective of the outcome of the UK vote on EU membership and forecast 7.4355 in 1M (revised down from 7.4375) and 7.4375 in 3-12M (unchanged) with downside risk to around 7.4350, where Danmarks Nationalbank will cap it selling DKK in FX intervention.
EUR/USD. We adjust downward our 1M and 3M EUR/USD forecasts to 1.11 and 1.10 from 1.12 previously, while we maintain our 6M forecast at 1.14 and 12M forecasts at 1.18. On a 1-3M horizon we think the combination of relative rates, Brexit risks and the fact that the US business cycle looks stronger than the Eurozone's should drive a slightly lower EUR/USD. We do not believe that a 'Bremain' will drive a substantially higher EUR/USD as this will increase the chance that the Fed will hike in September. On a 6-12M horizon we view valuation and external balances as supportive for a substantially higher EUR/USD. In addition, we expect the ECB to become more tolerant of EUR strength as CPI inflation picks up.
EUR/GBP. The outlook for EUR/GBP very much depends on the outcome of the EU referendum. In our main scenario we assume that the UK will remain in the EU. This implies that the GBP appreciates immediately after the referendum and we expect EUR/GBP to decline to the 0.7500-0.7650 range post the referendum. We target EUR/GBP at 0.76 in 1-3M. Longer term, we project further EUR/GBP downside driven by relative growth and relative monetary policy. We target EUR/GBP at 0.74 in 6M and 0.75 in 12M but stress that these forecasts are subject to significant digital risk.
USD/JPY. We have revised our USD/JPY forecast lower for the coming 12M in the absence of fiscal and monetary policy easing. However, we still project an increase in USD/JPY in the coming months driven by a UK vote to remain in the EU and relative rates (BoJ rate cut in July and Fed hike in September). We target 108 in 1M (revised lower from 112) and 112 in 3M (115). On a 6-12M horizon, we expect USD/JPY to stabilise targeting 112 in 6-12M (both revised down from 116).
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