Prospects for NOK and SEK near term – Danske Bank

Allan von Mehren, Chief Analyst at Danske Bank, gives his perspectives on both Nordic currencies in the near to medium term.

Key Quotes

“In the Scandi FX markets, the past month’s move lower in both EUR/NOK and EUR/SEK has seemed slightly overdone according to short-term FX drivers – even if we think both crosses remain fundamentally overvalued”.

“As a result, over the past couple of weeks, we have highlighted a risk of rebounds in both crosses, which is also why we took profit on our short EUR/NOK position”.

“Since then, we have seen both crosses move higher towards the upper end of their trading ranges. For the NOK, we think the latest data releases (not least Friday’s inflation print), momentum and positioning will eventually drive a break of the EUR/NOK range to the upside but we look to re-sell the cross below the 9.00 threshold as we still do not think Norges Bank will cut rates and as fundamental forces should act as a drag on the cross down towards our 12M forecast of 8.70”.

“For the SEK, the upcoming week will be very decisive in terms of the Riksbank meeting and the January inflation print. While the former is likely to be only a marginal SEK positive the latter is notoriously volatile due to taxes and reweighting. As a result, we highlight that SEK trading could be more volatile than suggested by our baseline forecasts”.