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While economists at Credit Suisse remain structurally constructive on the Norwegian krone, there is potential for the Norges Bank decision on 17 December to disappoint relative to the market’s already quite optimistic expectations. Therefore, spikes in EUR/NOK towards 10.79 would rapidly find sellers. Meanwhile, the medium-term target of 10.41 in EUR/NOK is still in place.

Key quotes

“Ultimately, the improvement in oil prices, in particular, is a notable and welcome development for NOK bulls, especially against the backdrop of gloomy expectations for demand, as per the latest updated estimates from the IEA and OPEC. Furthermore, several other cyclical drivers, from expectations of US fiscal stimulus to Brexit and to the recently successful passing of the EU budget, continue to provide a supportive backdrop for risky assets and for pro-cyclical currencies. 

“Ahead of the Norges Bank meeting, we note that markets are already well-positioned for a policy outcome that validates an optimistic set of expectations, and the recent mixed tone of cyclical local data does not give us strong confidence that the Norges Bank will be able to deliver in line with these expectations. As such, while we retain a constructive stance on NOK and still hold on to our 10.41 EUR/NOK target, we see tactical risks to the upside in EUR/NOK ahead of this week’s decision.”

“If the Norges Bank were to disappoint relative to market expectations, we would not expect spikes in EUR/NOK to be long-lasting, and would anticipate sellers to emerge quickly around 10.79, the 50% retracement of the early September to late October move from around 10.37 to approximately 11.12.”