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12 Mar 2015
EUR/NOK heads towards 8.50 in the longer horizon – Danske Bank
FXStreet (Edinburgh) - According to analysts at Danske Bank, the positive prospects for the Norwegian economy and the ECB’s QE could send the cross lower, targeting the 8.50 area.
Key Quotes
“Our FX short-term financial models suggest that the move higher in EUR/NOK since Friday has been driven by the long rates spread and not least the oil price drop this week”.
“We expect the short-term EUR/NOK risk to remain on the upside as we see limited short-term upside potential in the oil price. We also expect Norges Bank to cut rates by 25bp and to keep its current soft stance at the monetary policy meeting on 19 March, indicating a relatively high probability of another rate cut over the summer”.
“Our 25bp cut expectation is based on the oil price remaining below Norges Bank’s projections from December, close trading partners having eased monetary policy further (e.g. Sweden and euro zone) and the regional network survey indicating weaker growth in the region of 0.25% q/q for the next two quarters, which is below Norges Bank’s current forecast”.
“On the other hand, we do not expect Norges Bank to cut rates further after March. Price consumption is still healthy, the housing market is strong, non-oil related exports are benefitting from the weaker NOK and the oil investment outlook has not weakened further”.
“In addition, we expect the oil price (Brent crude) to recover to a level around USD76/bbl in Q4, which alongside ECB QE playing out should contribute in sending EUR/NOK lower towards 8.50 in 3M, 8.25 in 6M and 8.15 in 12M”.
Key Quotes
“Our FX short-term financial models suggest that the move higher in EUR/NOK since Friday has been driven by the long rates spread and not least the oil price drop this week”.
“We expect the short-term EUR/NOK risk to remain on the upside as we see limited short-term upside potential in the oil price. We also expect Norges Bank to cut rates by 25bp and to keep its current soft stance at the monetary policy meeting on 19 March, indicating a relatively high probability of another rate cut over the summer”.
“Our 25bp cut expectation is based on the oil price remaining below Norges Bank’s projections from December, close trading partners having eased monetary policy further (e.g. Sweden and euro zone) and the regional network survey indicating weaker growth in the region of 0.25% q/q for the next two quarters, which is below Norges Bank’s current forecast”.
“On the other hand, we do not expect Norges Bank to cut rates further after March. Price consumption is still healthy, the housing market is strong, non-oil related exports are benefitting from the weaker NOK and the oil investment outlook has not weakened further”.
“In addition, we expect the oil price (Brent crude) to recover to a level around USD76/bbl in Q4, which alongside ECB QE playing out should contribute in sending EUR/NOK lower towards 8.50 in 3M, 8.25 in 6M and 8.15 in 12M”.