EUR/NOK faces upside risks near term – Danske Bank

Morten Helt, Senior Analyst at Danske Bank, noted the cross could move higher in the near term.

Key Quotes

“The NOK fended off oil price weakness yesterday. The key event this week is Thursday’s Norges Bank (NB) meeting where we – like markets and consensus – expect rates to be kept unchanged. Focus will therefore be on NB’s rhetoric and not least the rate path which currently does not pencil in a positive rate hike probability before Q1 19”.

“We expect the rate path to be kept unchanged, in which case we expect a modest move higher in EUR/NOK of three-four figures”.

“During the summer we argued that the downside potential for EUR/NOK was increasingly limited on the back of positioning and the oil price reaching the high end of its short-term trading range. In addition, over the past months, two factors have now also made relative rates a less likely factor to send EUR/NOK lower. First, it has become less likely that Norges Bank will send a hawkish signal to markets. Second, the postponement of the US debt ceiling issue means Nibor fixings are less likely to weigh on EUR/NOK in Q4 this year”.

“We maintain EUR/NOK as a near-term range play but the risk of a correction higher has increased. On Friday we raised our 1M and 3M forecasts to 9.40 (from 9.30) and 9.50 (9.30), respectively. The higher 3M forecast primarily reflects the usual December seasonality supporting the cross. We left our 6M and 12M forecasts unchanged at 9.10 and 9.00, respectively”.