EUR/NOK. We think that the short-term risks remain skewed to the upside as markets have priced out the probability of another Norges Bank rate cut in 2015 and as we approach year-end when NOK liquidity tends to worsen. Importantly, fundamentally the NOK remains very cheap which, together with a reversal of bearish speculative NOK bets, should become a NOK positive when the Norwegian business cycle turns. We leave our 6-12M forecasts unchanged at 9.25 in 6M and 8.80 in 12M, but lower our 1M and 3M forecasts to 9.30 (both from 9.40).
EUR/SEK: Looming easing measures from the Riksbank will, in our view, stem further downside in EUR/SEK for now. We maintain our 1-3M forecast at 9.40 and also keep our 6-12M forecasts intact at 9.30 and 9.00, respectively.
EUR/DKK: We still forecast EUR/DKK to drop to 7.4550 in 3M-12M on the back of two unilateral rate hikes.
EUR/USD: We see EUR/USD as being range-bound between 1.10 and 1.16 in the coming months with a move lower as markets buy into a first Fed hike in early 2016. Notably, if it materialises, our not-so-aggressive call on ECB easing (a mere extension of QE) limits the EUR downside from euro area monetary policy. We think the low in EUR/USD will arrive in 3-6M and now see the cross at 1.12 in 3-6M (1.10 previously) with the possibility of dipping temporarily towards 1.10. Given that we see no sustained trend in relative monetary policy in H2 16, we expect to eventually see a gradual move higher in the cross towards the levels warranted by medium- to long-term fundamentals. Notably, we now see the pair at 1.20 in 12M (1.15).
USD/JPY: We change our call and now expect the Bank of Japan to announce an increase in its target for the annual monetary base expansion from JPY80trn to JPY100trn at the 30 October meeting. This should ensure short-term support for USD/JPY and we have revised our 1M and 3M forecasts slightly higher to 124 (120) and 125 (124), respectively. The relatively modest upward revision of the 3M forecast reflects both a postponement of the first Fed hike to Q1 16 and the diminishing effect on the JPY from further acceleration in the BoJ's asset purchases. Longer term, we expect USD/JPY to be kept in a range by, on the one hand, relative monetary policy supporting the cross, while increasing headwinds - stemming from the significant JPY undervaluation and an improved inflation and growth outlook in Japan - are likely to limit further JPY depreciation.
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