NOK strength should be temporary – Danske Bank

Senior Analyst at Danske Bank Jens Pedersen suggested that NOK’s upside momentum should be running out of steam in the near term.

Key Quotes

“Overall, the outcome of yesterday’s Norges Bank meeting raises the downside risk to our forecasts for EUR/NOK but we still do not expect it to be the trigger for sustainable NOK appreciation as:”

“(1) strong NOK appreciation could be the trigger for a rate cut, (2) the global business cycle is vulnerable, (3) we are not near-term optimistic on the oil price given point two and (4) relative unit labour cost developments suggest limited NOK upside potential in the short term”.

“Having said this, the breach of important technical barriers to the downside is likely to send the cross lower over the coming days, which given the latest change in positioning could open up for attractive tactical buying opportunities”.

“In our base case, we first expect EUR/NOK to move sustainably lower in 2017 when valuation, positioning, a gradually higher oil price, relative rates and fundamentals will weigh on the cross”.