EUR/NOK: Despite the collapse in global equities and oil in October, EUR/NOK has been surprisingly stable. The cross has only moved from the low-end to the high-end of the range, which in our view supports the notion that the aggregate NOK position is fairly balanced and leaves potential when USD longs are covered in 2019. We still pencil in a range-trading EUR/NOK on this side of New Year as the reduced potential for a Norges Bank repricing, oil weakness and investor focus on year-end seasonality limit the likelihood of a NOK move higher short-term. For 2019, however, we still think there is an appealing case for a stronger NOK on monetary policy tightening and valuation. We raise our 1M forecast to 9.60 (from 9.40) but leave the rest of the profile unchanged at 9.40 in 3M (NYSE:MMM), 9.20 in 6M and 9.10 in 12M.
EUR/SEK. The coming months will be busy, with the first rate hike expected in seven years, the messy Swedish political situation (including the risk of a snap election) and global risk sentiment from, among other things, Italy, Brexit and the global business cycle. Our 1-3M forecasts reflect the tailwind for the krona from the predicted December rate hike and the intermediate headwinds stemming from political risks, PPM and seasonality. Since the 1M point is just one week before the RB decision, we lower our 1M target to 10.20 (from 10.40), stressing that we still see a chance that EUR/SEK will breach 10.40 in coming weeks. We lower our 3M, 6M and 12M forecasts slightly to 10.10 (from 10.20), 10.00 (from 10.10) and 10.00 (10.10) noting that we have pencilled in a second, still not fully priced, Riksbank rate hike in July 2019.
EUR/DKK. The DKK is relatively more exposed to an escalation of the global trade war as the Danish economy is small and open and has significant exposure to global shipping. Furthermore, Denmark has net exposure to the stock market due in particular to the Danish Life and Pension (L&P) sector's large holdings of US and euro-area stocks. In addition to the easier DKK liquidity situation and negative FX forwards, this helps explain the recent rise to the 7.4600 level. We expect the pair to trade around 7.4550 in 1M, 7.4525 in 3M and 7.4550 in 6-12M.
EUR/USD. The strong US economy should keep the Fed adamant about becoming 'neutral' on rates during the course of 2019 and thus should continue to add to the cyclical and carry support to the USD. With the risk of Italy and Brexit setbacks, this should leave EUR/USD at a range of around 1.13 on a 3M horizon with a good chance of a short-lived dip towards 1.11. However, we still believe ECB 1normalisation and valuations are still set to support EUR/USD over 6-12M. We have lowered our short-term profile slightly and see EUR/USD at 1.13 in 1M, 1.13 (from 1.15) in 3M, 1.18 (unchanged) in 6M, and 1.25 (unchanged) in 12M.
EUR/GBP. EUR/GBP has dropped sharply since late October, driven by rising Brexit optimism. The lack of a sustained break lower in EUR/GBP after it was announced that UK PM Theresa May got support for a Brexit deal from her Cabinet in our view reflects that uncertainty remains high and that high expectations were priced into GBP already. We still expect EUR/GBP to break lower once a deal is finalised and have revised our 1M target lower to 0.84 (previously 0.88), as our base case remains that the House of Commons will vote in favour of the deal. However, expect GBP to remain very volatile in the coming month, with risks skewed to the upside amid the risk of a turbulent period in UK politics.
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