EUR/USD. We lower our 1M EUR/USD forecasts to 1.02 (1.05 previously) but maintain our 3M forecasts at 1.04, 6M forecasts at 1.08 and 12M forecasts at 1.12. The lowering of our 1M forecast reflects partly 'a rolling' of our monthly forecasts but is also the result of the Fed's hawkish shift at its meeting on 14 December. We stick to our view that the Fed will hike twice next year but the risk is now skewed towards three hikes. The recent downside break in EUR/USD off the decades low from March 2015 at 1.0458 is set to open the door for further losses, given rising US growth and rate expectations. As such, we continue to view EUR/USD as a short-term 'sell on rallies'. Medium term, we continue to expect EUR/USD to head substantially higher due to valuation and the record-high eurozone-US current account differential.
EUR/NOK. As expected, Norges Bank kept rates unchanged at the December meeting while maintaining a neutral bias in the statement. We think the bar for more monetary easing has become high in Norway, especially given the housing market situation in Oslo. A hike, however, also seems far away given the outlook of still only moderately higher output growth, falling inflation and lower-than-expected wage growth outlook. We still expect EUR/NOK to move lower next year, as normalising growth and real interest rates, higher oil prices and valuation forces all point to a lower cross in 2017. Near term, however, we see a risk of markets overreacting to OPEC headlines, which together with markets digesting a more hawkish Fed and year-end seasonality, could prove to be near-term headwinds. In light of the recent rise in oil prices, we lower our 1M and 3M forecasts to 9.10 (both from 9.20), but leave our 6M and 12M forecasts unchanged at 9.00 and 8.80, respectively.
EUR/SEK. The near-term outlook for EUR/SEK is determined by the Riksbank's decision(s) next week, where we in line with consensus expect a six-month extension of the QE programme (SEK20bn nominal and SEK10bn index-linked). This part, being another QE taper, should be relatively neutral for the krona (or even positive). In addition, we have pencilled in a 'low conviction' 10bp rate cut, which is clearly a non-consensus call, where RIBA contracts indicate it is a mere 10% chance. This part of the decision would, if it materialises, send EUR/SEK higher, but only temporarily. More important, however, is what the Riksbank will do after December. Even the uber dove Per Jansson has admitted that the toolbox is soon close to being emptied. We see the December shot as the last one in this cycle, where the Riksbank may take comfort in the fact that inflation expectations are now closer to target. Monetary policy will thus be less of a headwind going forward. We forecast EUR/SEK at 9.85 (lowered from 9.90), 9.70, 9.40 and 9.30 in one, three, six and twelve months.
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