Bank of America has issued a tactical buy recommendation on the euro against the Norwegian krone, pointing to positioning and expected changes in the interest-rate outlook as the core drivers behind the call.
The bank’s proprietary up/down volatility gauge for the EUR/NOK pair is positioned in the 22nd percentile on a one-year lookback. That reading, Bank of America says, indicates short positions in the pair are crowded and creates an asymmetric opportunity for EUR/NOK to advance should those positions unwind.
Under its central scenario, Bank of America assumes there is no protracted conflict involving Iran. The firm expects that outcome would be associated with improved risk sentiment and with lower energy prices. Over time, the bank anticipates lower energy prices would come to dominate market dynamics and act as a force pulling EUR/NOK higher.
Market pricing currently reflects the risk of a Norges Bank rate hike by the end of the year. Bank of America, however, places greater probability on a rate cut than on a hike within its base case that excludes a prolonged Iran conflict. That assessment of Norway’s policy path underpins the firm’s preference for the euro against the krone.
The bank also highlighted a desire to hedge against risk-off scenarios. It made clear those hedges are not exclusively tied to geopolitical developments, indicating the firm is positioning more broadly for downside shocks to risk sentiment.
This recommendation blends technical positioning signals - notably the low percentile ranking of the up/down volatility measure - with a macro view in which energy prices and risk appetite shift in ways that favor a stronger euro versus the Norwegian currency. The stance contrasts with current market pricing that leans toward tighter policy from Norges Bank by year-end.
Observers should note that the bank’s outlook rests on the conditional assumption that a prolonged Iran conflict does not materialize; the firm links that scenario to the chain of effects that would improve sentiment and lower energy prices.