EUR/NOK . During the summer we argued that the downside potential for EUR/NOK was increasingly limited on the back of positioning and the oil price reaching the high end of its trading range. In addition, over the last months two factors have now also made relative rates a less likely factor to send EUR/NOK lower. First, it has become less likely that Norges Bank will send a hawkish signal to markets in September. Secondly, the postponement of the US debt ceiling issue means Nibor fixings are less likely to weigh on EUR/NOK in Q4 this year. We maintain EUR/NOK as a near-term range play but the risk of a correction higher has increased. We raise our 1M and 3M forecasts to 9.40 (from 9.30) and 9.50 (9.30), respectively. The higher 3M forecast primarily reflects the usual December seasonality supporting the cross. We leave our 6M and 12M forecasts unchanged.
EUR/SEK . EUR/SEK has turned markedly lower since June. The drop from around 9.80 to current levels can be justified by the repricing of relative rates, which in turn has been driven by a long-awaited surge in Swedish inflation. We expect inflation to stay above 2% for most of 2017 and also at or above the Riksbank forecast. This will serve as a cap on EUR/SEK, whereas a significant appreciation of the SEK from here still requires a marked shift in policy stance from the Riksbank. We look for continued range-trading around 9.50 in the next few months. We keep our forecast profile intact at 9.50, 9.40, 9.30 and 9.20 in 1M, 3M, 6M and 12M, respectively.
EUR/DKK . It is noteworthy that EUR/DKK has still not responded to the strong rally in EUR, partly on the back of a repricing of ECB monetary policy. A further rise in EUR/USD next year will spill over to EUR/DKK to some extent. We forecast EUR/DKK will trade at 7.4400 in 1-3M and 7.4450 on 6-12M.
EUR/USD . We maintain that any dips in EUR/USD should be shallow and short-lived as fundamentals still provide support, and as notably a reversal in debt flows is a key source of upside risks for the cross. In our view, recent price action and flow patterns have confirmed that flows are a key driver in the current normalisation environment, which is a key reason we have upped our 12M forecast for the cross to 1.25 (previously 1.22). Near term, we see EUR/USD trading around the 1.20 level and have upped our 3M and 6M forecasts to 1.19 (1.17) and 1.22 (1.18), respectively, as the ECB now seems less vocal on EUR strength than expected. We see the cross at 1.19 in 1M.
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