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With oil prices currently at $60/barrel, EUR/NOK should trade around 10.10. Economists at Nordea see some downside in the pair from the current 10.25 in the short-term. Toward the summer, NOK should continue to strengthen in tandem with the normalisation. 

Key quotes

“We see more downside in EUR/NOK from the current level, not only over the longer horizon but also in the short-term. An oil price at $60/barrel implies EUR/NOK around 10.10 according to our simple model. If oil prices hold their ground, as we expect, we will get there in the near-term. If market sentiment for some reason should sour, we see resistance on the upside at 10.40.”

“The oil price will determine how low EUR/NOK will go this year and we are very comfortable with our prediction that the cross will come below 10.00 later this year.” 

“Vaccines work – just look at Israel – and the world is due to receive higher amounts of vaccines from a more diverse group of producers ahead. We therefore expect to see a large degree of normalisation in developed economies from the summer onwards. In tandem with the normalisation of societies, oil demand will increase and so will oil prices. This will support NOK.”

“Risk sentiment will likely continue on a positive note – also supporting NOK. And when Norges Bank sees that the economy is about to normalise, the central bank could easily signal sooner rate hikes. This should prove additional support for NOK down the road, as most other central banks are nowhere near even thinking about hiking rates.”