EUR/NOK. We have seen EUR/NOK move sharply lower in the first months of the year as foreign investors have returned to the NOK market amid improved fundamentals and higher NOK rates. In the near-term we are cautious on positioning, a thin domestic data calendar, global risk appetite and external support factors for the short end of the NOK-curve; i.e. the price of offshore USD. However, we still see the relative growth outlook, valuation and the 2017 terms of trade shock as eventual NOK positives. In addition, the outlook of a NB September hike still leaves potential for somewhat higher short-end NOK rates. We leave our profile unchanged forecasting the cross at 9.50 in 1M, 9.40 in 3M, 9.20 in 6M and 9.10 in 12M.
EUR/SEK. We reached our 10.00 Q1 target and remain bullish on EUR/SEK. The two-pillar backdrop for our negative view on the krona is (i) subdued inflation and too aggressively priced Riksbank and (ii) a housing market under pressure that will take a material toll on GDP growth. This week, Valueguard came in weaker than we had expected in February which suggests the downtrend has resumed already. In addition, the details in the February inflation data were on the weak side and we now think that the Riksbank will push the first hike beyond 2018 already in April. Therefore, we raise EUR/SEK to 10.20 (10.10) in 1M, 10.30 (10.20) in 3M, 10.30 (10.20) in 6M and 10.10 (10.00) in 12M.
EUR/DKK . We forecast EUR/DKK at 7.4450 on 1-6M rising to 7.4475 on 12M aided by a further rise in EUR/USD. In the short-term, we look for EUR/DKK to continue to trade in a wide range (7.4400-7.4500) as tighter DKK liquidity on the back of large pension tax payments and the annual dividend pay-outs by Danish corporations will further add to volatility.
EUR/USD. Near term, with neither the ECB nor the Fed in a hurry to signal a faster tightening pace, a key issue remains whether the US will escalate the trade-war rhetoric further. In our base case, that barriers are limited to a very specific area, EUR/USD is set to stay range bound near term. Our medium-term story remains unchanged: a turn in the capital tide from USD to EUR is brewing as the relative attractiveness of EU versus US assets is on the rise. We have kept our forecast profile unchanged and thus continue to see EUR/USD at 1.23 in 3M, 1.25 in 6M, and 1.28 in 12M; we see it at 1.23 in 1M with the pair set to stay in the 1.21-1.26 range.
EUR/GBP. We expect Brexit to remain a key driver for GBP in the short term. We target 0.88 in 1M but expect the cross to remain volatile within the 0.865-0.895 range ahead of the EU summit on 22-23 March. Longer term, we expect the combination of higher UK interest rates and Brexit clarification to gradually move GBP away from fundamentally undervalued levels. We target EUR/GBP at 0.87 in 3M, 0.86 in 6M and 0.84 in 12M.
USD/JPY. The downward pressure on USD/JPY stemming from the sell-off in the US and European fixed income markets has eased. However, we still see risks skewed to the downside in the coming months as we expect the combination of portfolio flows, stretched short speculative JPY positioning and not least concerns about the Trump administration's protectionist agenda to weigh on USD/JPY. We target 105 in 1M (previously 104) and 107 in 3M (previously 104). Longer term, we expect USD/JPY to gradually recover supported by continued solid global growth outlook and Fed-BoJ divergence, and we expect the cross to eventually return to the 110-115 range in 6-12M. We target the cross at 110 in 6M and 112 in 12M.
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