EUR/NOK target raised to 10.70 amid widening contango in oil markets – Credit Suisse

Economists at Credit Suisse revise the EUR/NOK target higher from 10.40 to 10.70, as they see reduced potential for supportive surprises on the local front. 

Key quotes

“The balance of FX drivers will remain tilted in favour of global over domestic factors. The widening in contango in Brent and WTI prices, in particular, stands out in our view as a reason for caution on NOK in particular, especially at a time when evidence of support for risky assets from the post-COVID-19 paradigm of accommodative monetary and fiscal policy is starting to become more mixed, as markets shift their focus towards risks from the approaching US election and from increasingly tricky Brexit negotiations.” 

“While previously we would have viewed the pullback in EUR/NOK from our 10.40 target as an occasion to reload to the downside, we now instead turn neutral on the pair around 10.70 and expect near-term price action to be closely driven by short-term shifts in crude prices.”

“We remain alert to the possibility of a spike to the late June highs around 10.88 in the event of further near-term weakness in crude. Prospects for a more sustained bearish outcome are for now limited tactically by the rapid repricing of EUR/NOK directional risks in vol space. In the meanwhile, local factors are likely to become somewhat less central to the view but will not subside completely.”