EUR/NOK has moved sharply lower over the past week. The main drivers behind the move are the recovering oil price, a repricing of short-term Norges Bank monetary policy, the long-end NOK-EUR rates spread and general EUR weakness.
Near-term, EUR/NOK may undershoot on technicals and light positioning.
However, our short-term financial models suggest that the move lower is overdone. Near term, more volatility in the oil market and more aggressive pricing of Norges Bank are likely to send EUR/NOK higher in the coming month, towards our 1M target of 8.65.
Medium term, we remain bullish on the NOK. We expect an oil price recovery, interest rate differentials and ECB QE to drag EUR/NOK lower towards 8.25 in 6M and 8.15 in 12M.
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