EUR/NOK. We still think the relative growth picture, the positive terms of trade shock (higher oil prices) and a Norges Bank set to initiate a moderate hiking cycle should support a stronger NOK this year. However, in the near term, the NOK faces real headwinds, which limits the short-term potential. Also, given that markets are already pricing in a September hike with a high probability, which creates an asymmetric balance of risk towards further data disappointments, better-than-expected data will not lead markets to price in more for September at this stage whereas further disappointments would trigger a postponement of the expected first rate hike, in our view. In light of the recent data disappointments and headwinds, we raise our 6M forecast to 9.30 (9.20 previously) and 12M forecast to 9.20 (9.10), but leave our 1M and 3M forecasts unchanged at 9.60 and 9.40, respectively.
EUR/SEK. Our bearish SEK view has two pillars: first, the inflation outlook makes it hard for the Riksbank to raise rates this year; second, a sharp slowdown in growth due to the housing market. That said, we argued in FX Strategy: EUR/SEK 6 pause in ascending trend channel , 4 May, that EUR/SEK looked overbought and was prone for a correction. Since then, we have seen the sharpest krona recovery since 2015. There is a silly circular reference from a weak SEK to higher inflation to higher rates and then back to a stronger SEK that sort of caps the upside in EUR/SEK. On the other hand, this circular reference is symmetric, where too much SEK appreciation will not be welcomed by the Riksbank given subdued underlying inflation while a slowdown in growth remains a headwind for the SEK. We set our1M forecast to 10.20 (10.40), 3M to 10.30 (10.50), 6M to 10.50 (unchanged) and 12M to 10.20 (unchanged).
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