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In this publication: Add HUF long (versus EUR) to our FX high conviction calls… because of strong fundamentals,… a possibility of a rating upgrade and… an attractive level to enter EUR/HUF short.160512-FX-Conviction-update.pdf (214 KB)
Add HUF long (versus EUR) to our FX high conviction list
We expect the Hungarian forint to continue to outperform the euro this year and next year. Financial markets have taken Hungarian politics for granted so this will unlikely weigh on investor sentiment towards the forint. What is more important is that fundamentals are very strong and a rating upgrade is increasingly likely. Hungary has a substantial current account surplus which will likely shield it from a sharp deterioration in investor sentiment on financial market. Despite the fact that the Hungarian central bank will probably further ease monetary policy in the near-term, this will be very modest and less than what financial markets appear to anticipate. Further down the road, higher inflationary pressures and a strong economy will likely result in more aggressive rate hikes later on. This should result in a strong rally in the forint versus the euro. In short, current relatively low levels in the forint are an opportunity to position for strength in later this year and next year. Therefore we add long HUF versus euro to our FX high conviction list. We put the stop loss on 325.
More strengthening of the Norwegian krone ahead
The strong rally in oil prices since the lows set in January, has given strong support to the Norwegian krone. Today, Norwegian Q1 GDP numbers were released. Both total GDP and mainland GDP surprised on the upside. Meanwhile, the Norges Bank kept interest rates unchanged at 0.5%. In the statement the Norges Bank said that “consumer price inflation remains elevated, but a stronger krone may contribute to a slightly more rapid decrease in inflation than projected in March. On the other hand, the rise in oil prices may reduce uncertainty and contribute to somewhat higher growth in the Norwegian economy”. We think that the Norges Bank is comfortable with a strengthening krone in an environment of higher oil prices, which we expect. We expect the krone to outperform the euro this year and next year. Our targets for EUR/NOK for the end of 2016 and 2017 are 8.75 and 8.25 respectively. So we keep our short EUR and long NOK position.