In this year's last and shortened edition of FX Forecast Update we focus on discussing the main forecasts changes since the November version. More broadly, we also highlight five themes we think will be instrumental in driving the FX market next year.
EUR/NOK. Since the summer, we have been arguing that the NOK should weaken going into year-end. Meanwhile, given the latest NOK weakness and data releases, we think a fundamental case for a stronger NOK in 2018 is now building. We leave our forecast profile unchanged at 9.60 in 1M, 9.40 in 3M, 9.20 in 6M and 9.10 in 12M.
EUR/SEK. We think the Riksbank will have to delay the first hike and flatten the forecast trajectory based on a too optimistic inflation outlook but also a cooling housing market, the FX implication would be that the krona stays weak for longer. On balance, we target EUR/SEK at 10.00 (10.10 previously) in 1M, 10.10 (unchanged) in 3M, 9.90 (9.80) in 6M and 9.80 (9.70) in 12M.
EUR/DKK. We expect EUR/DKK to trade around 7.4425 on a 1-6M horizon. Next year, we look for some positive spill-over from a higher EUR/USD and forecast the pair at 7.4450 on 12M (unchanged).
EUR/USD. While keeping our EUR/USD forecasts unchanged, we stress that risks to these are asymmetric on the upside going into 2018. Notably, since our last forecast update, the ECB appears to have changed its attitude both with respect to its 'attitude' with notably focus shifting towards 'super core' inflation measures and a possible 'decoupling' of the QE decision from the inflation outlook. We still see EUR/USD at 1.16 in 1M and 3M, 1.20 in 6M and 1.25 in 12M but stress that risks to these lie predominantly on the upside.
EUR/GBP. We still expect EUR/GBP to trade within the 0.8650-0.90 range in coming months. Longer term, the case for a lower EUR/GBP remains intact as Brexit uncertainty clarifies. We still target 0.86 in 12M but stress that the risks are that a break lower in the cross could come sooner than our forecast indicates, and that the cross might break considerably lower.
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