EUR/SEK The backdrop for the SEK has changed recently and, in our view, on balance mitigated the upside risks in EUR/SEK. The 'light bazooka' from the ECB puts less pressure on the Riksbank to act in December via the exchange-rate channel with the krona currently trading just slightly below the Riksbank forecast. We have postponed the10bp cut to -0.45% to April (from December), when our inflation forecast suggests the Riksbank will need to act again. We also believe time will then be ripe for an expansion of the QE programme by SEK40-50bn by then. In addition, the Swedish macro data have consistently been stronger than both we and the market had expected. Our impression is that the Riksbank has some tolerance for SEK appreciation when this is caused by strong Swedish macro and fundamentals. On balance, we think that the fair range for EUR/SEK has shifted down to 9.10-9.50 for the next couple of months (prev. 9.30-9.60), while noting that the PPM money , see FX Strategy - PPM money and EUR/SEK , may weigh temporarily on the krona near term We still look for a gradual decline in EUR/SEK during 2016 based on fundamental realignment and we lower our 1-3M forecast to 9.30 and 9.20, respectively (prev. 9.40), 9.10 in 6M (prev. 9.30) and 8.90 in 12M (prev. 9.00).
EUR/NOK Short term, poor year-end liquidity will keep risks skewed to the upside and we maintain our 1M forecast of 9.40, albeit we stress a risk of the spot temporarily overshooting this level. Although the NOK remains fundamentally very cheap, we do not expect a significant appreciation trend to materialise before the business cycle turns and Norges Bank can signal a no more need for rate cuts. In our view, this will be the story for 2016. Hence, we also leave our 3M, 6M and 12M forecasts unchanged at 9.40, 9.25 and 8.80, respectively.
EUR/DKK We have upped our EUR/DKK profile somewhat to 7.4600 in 1-12M (prev. 7.4550) as the projected DKK appreciation pressure is unlikely to intensify materially after the ECB left the big easing bazooka at home. Fundamentally, support to DKK remains in place and DN effectively delivered a small rate hike by not shadowing the ECB last week - on the whole, this confirms our view that DN will stay put on rates on a 12M horizon.
EUR/USD Short term, the cross should take a hit from adjustment to a Fed hiking cycle and markets speculating the ECB will have to do more given the December disappointment. While upside to US rates should weigh on EUR/USD in 2016, we stress that the December move will likely prove to be the end of ECB easing. Notably, that the cross should be less exposed on the downside as the sensitivity to monetary policy is fading due to stretched positioningand as our longer-term valuation models suggest that fundamentals drag increasingly in the other direction. Thus, we expect the cross to be range-bound in the 1.05-1.10 interval on a 3M horizon and now think its is unlikely that we will reach new cycle lows - we project the cross at 1.06 in 1-3M (prev. 1.02). Further out, we still see a strong euro recovery and the outlook for fading rate divergence to fuel a move higher to 1.10 in 6M (prev. 1.06) and 1.16 in 12M (unchanged).
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