Polish Zloty (EUR/PLN) – PLN recovers on better global sentiment

The Zloty market recovered some of the ground it lost the previous week. Investors received rather well the news about Spain’s projected budget (which is expected to generate around 40bln EUR in savings) which in turn decreased risk aversion. Demand for the PLN increased despite not so positive macro data from the local economy. Retail Sales (on a yearly basis) increased by 5.8% in August (an over 1% decrease compared to the last reading although better than forecasts) while the unemployment rate climbed to 12.4%. Now all eyes are on the MPC, which next week on Wednesday is expected to cut interest rates by 25bp to 4.5%. Any other decision (a bigger cut?) would trigger a biggeer move and increase volatility. The MPC is known for its conservative approach to monetary policy, but the economic slowdown is clear and it cannot wait longer with lowering interest rates (this week the National Czech Bank did it).


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Pic.1 EUR/PLN D1 Chart


For most of the week the EUR/PLN traded in a narrow 4.13 – 4.15 range, breaking from it by Thursday. As we see on the daily graph, the market broke the support of 4.12 and briefly flipped below 4.10. Continuing the downward movement would make the EUR/PLN target 4.05. That kind of move can happen if the issue of financial aid for Spain is resolved. On the other hand we see that the market is oversold (as shown by the stochastic oscillator) and a rebound is probable. In order for a higher move, the EUR/PLN would have to break the closest resistance of 4.12 with 4.15 being the next target. 

 

Hungarian Forint (EUR/HUF) – another interest rate cut by the MPC

In an expected move the MPC cut interest rates by 25bp to 6.50% making it the second cut in a row. The MPC is reacting to the economic slowdown and to what major central banks are doing. Losening monetary policy is a trend which most MPC offices in the region are doing. Despite the difficulties through which the Hungarian economy is passing right now, employment keeps climbing. The Central Statistics Office informed that the unemployment rate in Hungray dropped to 10.4%, the lowest level in 2.5 years. The good macro data did not help the Forint which still much depends on the results of the talks with the IMF. The deal has not been rached although negotiations are going on.


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Pic.2 EUR/HUF D1 Chart


Despite breaking the important support of 282, the EUR/HUF has not continued its downward path. As we can see on the graph it broke through 282 trying to test 287. The market lost momentum and at this moment the probability of attacking the resistance is smaller. I would rather see the EUR/HUF testing back 282, especially if global sentiment improves. The stochastic oscillator does not proved a clear signal although it is close to the „overbought” sign. For a major move we will need to see the market breaking from the 282 – 287 range.


Romanian Leu (EUR/RON) – NBR keeps the rate at 5.25%

The National Bank decided to stand pat on its rate and required reserve policy on Thursday, and this came as no surprise, but allowed for the “defenseless” Leu to continue sliding against the Euro. Inflation has been on the rise, reaching 3.9% but at 5.25% the present rate appears appropriate. The approaching elections make markets nervous, as the policy of more social spending and less investment might be enhanced after the parliamentary polls in November. The economy that struggles to grow this year faces challenges due to funding constraints and both external and internal demand pressures in the following quarters. There are some good news; the unemployment ticked lower in the second quarter reaching 6.9% after a 7.6% rate in the previous one. The budget deficit reached 1.12% of GDP in Q1, leaving enough hope that the target could be reached. Still, the balance points to lower RON valuation in the week(s) ahead. The controversial privatization of Oltchim does not help, either.

In the technical perspective, after a break of the long-awaited 4.5222 EURRON appears bullish, until first resistance comes at 4.5483. Inside the uptrend channel there is also room to reach this mark, which also stands for the 50% retracement of the previous downspike. In our view the 4.5643 H&S target and the 61.8% retracement at 4.5737 are well within market reach, though the timetable is uncertain. On a close below the trendline, around 4.50 the picture turns bearish with support around 4.46.

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Pic.3 EUR/RON D1 Chart