Danske Research Team
Danske Bank A/S
Today we publish our new FX Forecast Update. We have lowered our 3M target for EUR/USD a bit, but we still expect the cross to trade slightly higher EUR/USD on a 3M horizon (we target 1.40 in 3M) as it takes time before the ECB will deliver more easing. Hence, euro positive current account and capital flows will be able to dominate EUR/USD on a 3M horizon. The latest FOMC minutes also revealed that the FOMC is in no hurry to hike rates when tapering is done. All in all, a new trend lower in the cross should probably not be expected before the ECB starts a new easing round. Thus, relative monetary policy will not in our view be able to push EUR/USD lower before on a 3 to 6M horizon. However, comments from Bundesbank's Weidmann yesterday that the ECB should discuss what assets a QE programme should buy underlines that eventually the current support to EUR/USD will reverse. We target EUR/USD at 1.36 in 6M (previously 1.37) and 1.30 in 12M (previously 1.32).
The low Swedish inflation and the higher-than-expected Norwegian inflation numbers yesterday once again underlined that monetary policy in Sweden and Norway is on a divergent path at the moment, putting further upward pressure on NOK/SEK. From a technical point of view the next target is 1.1115. Note however, that our short-term financial model cannot explain the latest move higher as the fair-value estimate is currently at 1.085 for NOK/SEK. But all in all we continue to see upside for the cross.
Yesterday at 16.00 CET the sold 0.85 NZD/USD call option that we recommended in FX Market Update: Sell 1M NZD/USD 0.85 call option; We take early profit on long EUR/PLN call position (12 March) matured and the trade generated a loss of 1.50% (spot ref.: 0.8696). We recommended to sell 1M call option ahead the RBNZ meeting on 12 March as market pricing of future rate hikes (more than 100bp within 12 months) in our view appeared to be too aggressive. However, RNBZ delivered both the expected rate hike and a relative hawkish rhetoric indicating that the central bank in fact could hike rates more aggressively than market pricing indicates. This has since supported the NZD and while our short-term financial model still indicates that NZD/USD is significantly overbought, trading 2 standard deviations above model’s fair value estimate of 0.846, we expect the cross to stabilize around the 0.86 level in the coming months.
In Research DKK: Another year of negative rates ahead (11 April) we present five arguments why Danmarks Nationalbank will not increase interest rates independently the coming year. We expect EUR/DKK to remain elevated at 7.47 on 3M, while further easing from the ECB will reduce the negative carry on
This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector.
This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.
Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.
Recommended Content
Editors’ Picks
AUD/USD post moderate gains on solid US data, weak Aussie PMI
The Australian Dollar registered solid gains of 0.65% against the US Dollar on Thursday, courtesy of an upbeat market mood amid solid economic data from the United States. However, the Federal Reserve’s latest monetary policy decision is still weighing on the Greenback. The AUD/USD trades at 0.6567.
EUR/USD recovers to top end of consolidation ahead of Friday’s US NFP
EUR/USD drove back to the top end of recent consolidation on Thursday, recovering chart territory north of the 1.0700 handle as market risk appetite regains balance heading into another US Nonfarm Payrolls Friday.
Gold recoils on hawkish Fed moves, unfazed by dropping yields and softer US Dollar
Gold price clings to the $2,300 figure in the mid-North American session on Thursday amid an upbeat market sentiment, falling US Treasury yields, and a softer US Dollar. Traders are still digesting Wednesday’s Federal Reserve decision to hold rates unchanged.
High hopes rouse for TON coin with Pantera as its latest investor
Ton blockchain could see more growth in the coming months after investment firm Pantera Capital announced a recent investment in the Layer-one blockchain, as disclosed in a blog post on Thursday.
NFP: The ultimate litmus test for doves vs. hawks
US Nonfarm Payrolls will undoubtedly be the focal point of upcoming data releases. The estimated figure stands at 241k, notably lower than the robust 303k reported in the previous release and below all other readings recorded this year.