EUR/NOK . In the short term, the cross remains highly vulnerable to global risk sentiment. As the Fed now seems to be incorporating global growth concerns to a much larger extent, we think the oil price (and thereby the NOK) downside tail risk has been reduced significantly. However, we maintain the view that markets - and not least Norges Bank - will have to see clear evidence that the business cycle is turning before a more sustainable NOK appreciation trend can materialise. We expect this to be the story for H2. We now forecast EUR/NOK at 9.40 in 1M (from 9.70), 9.40 in 3M (9.70), 9.30 in 6M (9.40) and 9.00 in 12M (9.10).
EUR/SEK : Sweden stands out in growth terms and the krona is fundamentally undervalued. As such, we have a medium-term bullish view on the krona but as the Riksbank maintains an easing bias on already ultra-easy monetary policy, we expect the krona to stay weak over the next couple of months. On the back of growing reluctance to cut rates further, some pickup in inflation and inflation expectations, an increased tolerance to excessive SEK appreciation and improved global risk appetite, we have cut our 1M target to 9.20 (was 9.40), 3M and 6M targets to 9.20 and 9.10 (were 9.30), respectively, and we keep 12M intact at 9.10.
EUR/DKK : Accumulated 30bp of tightening of the policy rate spread to ECB by Danmarks Nationalbank since December, short-term tight DKK liquidity and potential hedging of Brexit risk is starting to weigh on EUR/DKK. We now forecast EUR/DKK at 7.4540 in 1M and 7.4490 in 3M-12M (revised down from 7.4550).
EUR/USD : With no obvious direction for the cross from relative rates as the Fed is sidelined and the ECB has withdrawn from the currency war, the key driver for the cross from here should be upside from a stretched valuation. This said, in 1-3M we look for range-trading in the 1.10-1.14 interval with a key downside risk being that of a Brexit. However, this is not our base. In our main scenario, EUR/USD will rise in 6-12M despite some upside in US rates further out as EUR-positive fundamentals dominate. We are rolling our forecasts, now looking for 1.14 (previously 1.10) in 6M and 1.18 (previously 1.16) in 12M and stress that it will take a combination of Brexit fears and a marked repricing of the Fed in a more hawkish direction to send the cross below 1.10 near term.
EUR/GBP : Given the high uncertainty surrounding the EU referendum, we see risks skewed on the upside for EUR/GBP ahead of 23 June. We raise our 1M and 3M forecast to 0.79 (from 0.78) and maintain 3M at 0.80 and think EUR/GBP may inch even higher ahead of the referendum day. Longer term, the outlook for EUR/GBP very much depends on the outcome of the EU referendum. In our main scenario, we assume a status quo for the UK. This implies that GBP should appreciate immediately after the referendum. We continue to target EUR/GBP at 0.74 in 6M and 0.73 in 12M but stress that these forecasts are subject to significant digital risk.
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