12 Feb 2015
EUR/NOK seen at 8.50 in 3-month – Danske Bank
FXStreet (Edinburgh) - Analysts at Danske Bank believes the dovish tone by the ECB and expectations for rate cuts by the Norges Bank could drive the cross to the 8.50 area in 3 months.
Key Quotes
“Norges Bank figures just released showed that foreign banks (proxy for speculative flows) net bought NOK in the week to 8 February worth a total of NOK6.4bn. Not only does this complete a four-week period of net NOK buying – marking a significant change in NOK sentiment – but last week’s purchases also constitute the largest amount of net NOK buying in a single week since November”.
“Meanwhile, Norwegian GDP figures for Q4 have also just been released… The economy seems to have been more resistant to the drop in oil prices than the market expected. Even though these are backward-looking data, the fact is that capacity utilisation was higher than expected going into 2015”.
“Hence, capacity utilisation should be roughly as Norges Bank had expected, and these figures should not weigh on the March rates decision. We therefore still expect the bank to cut rates once - namely in March by 25 bps”.
“In light of current market pricing (suggesting only a 45% chance of a 25bp cut in March) we expect EUR/NOK to move temporarily higher in the next four weeks, targeting 8.65 in 1M. However, we believe that Norges Bank pricing remains too dovish in the longer term (close to two 25bp cuts priced) and we expect a re-pricing, plus ECB QE and an oil price recovery to drag the cross lower towards 8.50 in 3M, 8.25 in 6M and 8.15 in 12M”.
Key Quotes
“Norges Bank figures just released showed that foreign banks (proxy for speculative flows) net bought NOK in the week to 8 February worth a total of NOK6.4bn. Not only does this complete a four-week period of net NOK buying – marking a significant change in NOK sentiment – but last week’s purchases also constitute the largest amount of net NOK buying in a single week since November”.
“Meanwhile, Norwegian GDP figures for Q4 have also just been released… The economy seems to have been more resistant to the drop in oil prices than the market expected. Even though these are backward-looking data, the fact is that capacity utilisation was higher than expected going into 2015”.
“Hence, capacity utilisation should be roughly as Norges Bank had expected, and these figures should not weigh on the March rates decision. We therefore still expect the bank to cut rates once - namely in March by 25 bps”.
“In light of current market pricing (suggesting only a 45% chance of a 25bp cut in March) we expect EUR/NOK to move temporarily higher in the next four weeks, targeting 8.65 in 1M. However, we believe that Norges Bank pricing remains too dovish in the longer term (close to two 25bp cuts priced) and we expect a re-pricing, plus ECB QE and an oil price recovery to drag the cross lower towards 8.50 in 3M, 8.25 in 6M and 8.15 in 12M”.