EUR/NOK . Fundamentally, the economic recovery in Norway still strongly depends on a weak currency, lower wage growth and the growth of important trading partners (e.g. the euro area and the UK). With the current outlook we therefore still expect fundamentals and relative rates to limit the EUR/NOK downside potential in the coming 6M. Brexit fears will also, in our view, be a positive for the cross in the coming months. In H2, we expect an improved growth outlook both in Norway and globally, a gradually higher oil price and a corresponding reduction in the NOK risk premium to send the cross lower towards 9.00. We leave our forecasts unchanged.
EUR/SEK . In our old forecasts we had EUR/SEK at 9.20 in Q2 assuming that the Riksbank would announce another round of QE in April. Now that we think that the Riksbank will stay on hold we consider it reasonable to lower the near- and medium-term forecasts a notch also taking into account the fundamental backdrop which continues to suggest that the pair should move lower over time. We lower the 1-3M target to 9.10 (from 9.20), 6M to 9.00 (9.10) and 12M to 8.90 (9.10).
EUR/DKK . We have revised down our forecast for EUR/DKK and now forecast 7.4425 on 1-12M (down from 7.4490). A narrower spread between DN and ECB policy rates, tight liquidity in the DKK money market and likely also increased demand for DKK as a safe haven against potential spill over to EUR from a Brexit vote in June weigh on EUR/DKK. We look for DN to cap EUR/DKK downside around 7.4350-7.4400.
EUR/USD . With positioning now much lighter in terms of short EUR/USD bets, we are entering a period in which relative rates could increasingly play a role again, and with a mere 50/50 pricing of a September Fed hike, and the ECB once again challenged on its mandate by market inflation expectations, we see relative rates moving for a weaker EUR/USD in 1-3M. Notably a negative Brexit risk premium could also be factored in ahead of the UK referendum but should be priced out swiftly in our main scenario of no Brexit. We keep our forecast profile unchanged, which leaves some downside near term (1-3M forecast at 1.12) followed by a sustained move higher towards 1.18 in 12M as valuation continues to drive the cross higher.
EUR/GBP . Given the high uncertainty surrounding the EU referendum, we see risks skewed to the upside for EUR/GBP ahead of 23 June. We forecast EUR/GBP at 0.80 (0.79) in 1M and think it may inch even higher ahead of the referendum day. In our main scenario, we assume a status quo for the UK, meaning that people vote to remain in the EU. This implies that GBP should appreciate immediately after the referendum, and we have lowered our 3M target from 0.80 to 0.76 as the 3-month horizon is now after the referendum date. Longer term, we project further EUR/GBP downside driven by relative growth and relative monetary policy. We target EUR/GBP at 0.74 in 6M and 0.75 in 12M but stress that these forecasts are subject to significant digital risk.
USD/JPY . We expect the Bank of Japan (BoJ) to cut its policy rate by 20bp to -0.3% on 28 April and to step up its purchases of ETFs and J-REITs. This is not priced in the market. Stretched short-term FX drivers such as positioning and technical indicators imply BoJ easing may be able to counter the strong downward pressure on USD/JPY stemming from fundamentals. We look for a stabilisation of USD/JPY above 110 targeting the cross at 112 in 1-3M and we leave our forecasts unchanged.
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