EUR/NOK. We expect the cross to move gradually lower in 2017 on normalising growth and real rates, valuation and oil markets stabilising further. In terms of the oil price-NOK relationship, we emphasise that even a stable oil price on balance should be a NOK positive. We shift our EUR/NOK profile lower, forecasting the cross at 9.00 in 1M (from 9.10.), 8.90 in 3M (9.10), 8.80 in 6M (9.00) and 8.70 in 12M (8.80).
EUR/SEK. Growth momentum has turned from a headwind into a tailwind for the SEK, which is part of the reason EUR/SEK has dropped recently from above 10.00 to 9.50, our 1M target. Another more important factor is the reassessment of the Riksbank. Our base case is that the Riksbank's latest QE programme will run throughout H1 but will not be extended and that the repo rate will not be cut further. However, should the krona appreciate too rapidly or inflation disappoint, we expect a response from the Riksbank. We think that the first line of defence is to postpone the first hike further. We forecast EUR/SEK at 9.50, 9.40, 9.30 and 9.20 in 1M, 3M, 6M and 12M, unchanged from our post-Riksbank December update.
EUR/DKK. The market is likely to be reluctant to buy EUR/DKK this year with high uncertainty attached to the outcome of multiple political events in Europe, while hedging of USD assets by domestic investors is likely to continue as the USD is not done rising. The downward pressure on EUR/DKK triggered selling of DKK0.7bn in FX in December by Danmarks Nationalbank (DN). Even if DKK selling by DN continues in January, it is not likely to trigger an independent Danish rate cut or a rebound in EUR/DKK towards the central rate of 7.46038. We forecast EUR/DKK at 7.4350 in 1-3M (revised down from 7.4375) and 7.4400 in 6-12M (revised down from 7.4425).
EUR/USD. We still think that growth and relative rates will continue to move in favour of a stronger USD in the near term. We target EUR/USD at 1.04 in 1M (1.02 previously) and 1.05 in 3M (1.04 previously) but stress that risks are skewed to the downside in the short term, conditional on Trump and the Fed. Longer term, we maintain our long-held view that the undervaluation of the EUR and the wide eurozone-US current account differential are EUR positives, targeting the cross at 1.08 in 6M and 1.12 in 12M (both unchanged).
EUR/GBP. GBP has depreciated substantially since the beginning of 2017, as markets have turned their focus back to the Brexit theme. We have lifted our 1M EUR/GBP target to 0.89 (previously 0.84) and 0.88 (0.87) in 3M but stress that the risk is skewed to the upside relative to our forecasts in coming months as the triggering of article 50, which we expect by the end of March, moves closer. Longer term, we expect EUR/GBP to stabilise within the 0.84-0.88 range targeting the cross at 0.86 in 6M and 0.86 in 12M.
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