EUR/NOK. We have reached our 1M forecast of 9.30. As written in the last update, we think the near-term downside potential from here is more limited for two reasons. First, given below target inflation, the level of the NOK and the cooling housing market we do not think Norges Bank is likely to hike rates before mid-2018. Secondly, the upside potential for the oil price seems more limited on the back of US producers re-entering the market for an oil price rise of USD3-5 from here. Also, long NOK positions have become increasingly crowded, albeit not historically stretched so. The Norwegian normalisation story, valuation and real rates remain clear NOK positives but we think we will first have to see the cross range trade in the 9.25-9.45 range in the coming months. We leave our forecasts unchanged.
EUR/SEK. The SEK's advance vs the EUR over the summer has been fundamentally justified on the back of a very strong GDP and much-higher-than-expected inflation data in our view. The recent (inflation) numbers must be followed by a clear hawkish shift by the Riksbank if EUR/SEK is to fall substantially lower in our view. While we do expect an adjustment to the Riksbank's language, we think it will make only marginal policy adjustments which may clash with current pricing (rate hikes and sharp drop in KIX) at the September meeting. We think that the Riksbank will put an end to QE in December, which could prompt a steeper yield curve and lend support to the SEK. On balance, we lower our EUR/SEK profile to 9.50 (9.60) in 1M, 9.40 (9.50) in 3M, 9.30 (9.40) in 6M and 9.20 (9.30) in 12M.
EUR/DKK. Danmarks Nationalbank (DN) has not needed to intervene in the FX market for the past four months as EUR/DKK has traded close to 7.4400. In particular, it is noteworthy that EUR/DKK has not responded to the recent strong rally in EUR partly on the back of repricing of ECB monetary policy. We forecast EUR/DKK will trade at 7.4400 in 1-12M.
EUR/USD. We have left our forecasts unchanged and maintain the view we laid out in FX Strategy: More upside for EUR/USD in store, 25 July, where we pencilled in EUR/USD at 1.17 in 1-3M, as we see the summer level shift as permanent even if upside should be capped near term by stretched positioning and a cyclical turn in the US. Longer term, support from the ECB and valuation is set to take us to 1.18 in 6M and 1.22 in 12M. Fundamentally, we view EUR/USD as still undervalued and the big move that investors should focus on is a higher EUR/USD. We maintain that any dips in EUR/USD are likely to prove short-lived and maintain that we are headed towards the mid-1.20s when the pricing of an ECB exit gains further traction.
USD/CNY. We lower our forecast for USD/CNY yet again as the cross continues to surprise on the downside, pulled lower by USD weakness. Our forecast is now 6.75 (6.9) on 3M, 6.80 (6.95) on 6M and 6.95 (7.1) on 12M. Further USD depreciation is set to put downside pressure on USD/CNY, while slowing growth in China, Fed hikes and Chinese financial risks will create upward pressure on the cross. EUR/CNY has moved in line with our expectations and we keep the forecast broadly unchanged looking for 8.48 (8.38) on 12M - hence continued weakening of the CNY versus the EUR. This is weaker than the forward market and we continue to recommend hedging of CNY receivables.
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