EUR/NOK: Fed shift a positive risk scenario for the krone – Danske Bank

Analysts at Danske Bank revised lower their forecast for the Norwegian krone versus the euro. They now see the EUR/NOK pair moving to 10.30 on a one to three month period and to 10.10 on a six to twelve months horizon. 

Key quotes

“A weakening pressure on the USD and the fact that the most important central bank for global monetary conditions now clearly signals a willingness to overheat the economy short-term bode well for commodity and inflation-sensitive currencies like the NOK.”

On the flow side, we increasingly see positioning turning stretched long NOK, which leaves NOK asymmetrically vulnerable to bad news. Also, as the COVID-19 fiscal bill turns out smaller than expected, the ‘reverse gravity’ from Norges Bank’s significant NOK buying will gradually fade.”  

“We lower our forecast profile across horizons emphasising positioning, as a key NOK risk factor should the reflation theme stall. We now forecast EUR/NOK at 10.30 (prev. 10.50) in one month, 10.30 (10.40) in three months, 10.10 (10.30) in six months and 10.10 (10.30) in twelve months.”