Polish Zloty (EUR/PLN) – Low volatility on the PLN marketIt was a rather sleepy week on the emerging markets currencies as investors are waiting for a stronger impulse that can move the markets. Now, investors are taking the wait-and-see stance so volatility is lower and we have to wait for the big swings. The Zloty market remained stable this past week. More and more signals show that the MPC should hurry up with interest rate hikes. The CPI index declined to 3,4% in October (from the previous 3,8%, on a yearly basis) so it seems inflation is not such a big danger as the central bank fears. International institutions notice the the Polish economy is slowing down – recently the IMF lowered its GDP forecast for Poland to 2,25% (from 2,4%) in 2012 and to 1,75% (from 2,1%) in 2013. Still, Polish assets remain in the interest of foreing capital. This past week the local main Warsaw Stock exchange index (the WIG20) performed surprisingly well, mainly due to one of its compnents - KGHM, which was acknowledged by global portfolio managers as one of the world’s top copper producers. Increased demand lifted KGHM’s stock, which in turn lifted the WIG20. Not only stocks performed well – 10y Treasuries yields chased new historic lows, this time dropping below 4,20%. Demand for local assets triggered demand for the Zloty, which after some hesitation at the beggining of the week, appreciated.
Pic.1 EUR/PLN D1 Chart
From the technical analysis standpoint, the EUR/PLN tested the 4.17 resistance level. Unseccesful at that, it turned back to levels just above 4.15. As we see on the graph, the market remains above the shorter downward trendline (grey line) and this will be the target for the market next week. Breaking the trendline at 4.13 would push the market down to 4.11 although I would expect the opposite – the EUR/PLN testing 4.13 and bouncing back to higher levels, trying to break 4.17. If 4.17 is broken, the market will target 4.21 as its next resistance. The stochastic oscillator is showing that the market is getting close to the level classified as oversold, and I would expect that level to be reached when the EUR/PLN tests 4.13.
Hungarian Forint (EUR/HUF) – Hungary remains in recessionIn Central Europe the Czech koruna is the one standing out as political headwinds and even zero rate monetary policy stance is constantly pushing lower the value of the CZK. Meanwhile the daily charts of EURHUF and EURPLN show large resilience towards panic driven selling. European stock markets were under pressure on a week where Eurogroup Ministers have postponed an agreement on Greece’s €31.1 billion aid payment and where the battle of the fiscal cliff starts as Obama meets with the four top leaders of Congress on Friday.On the frontline of Hungarian macro news the poor Q3 GDP data didn’t surprise market participants hence the Forint remained quite stable. On a yearly basis the economic output fell back by 1,5% while in contrast to that, the main target country of Hungarian export Germany grew by 0.9% year-on-year in the third quarter. This shows the only contributor to economic growth net exports, are not enough to compensate for the fallback of domestic consumption and investment contraction. In the future market participants might test the credibility of Viktor Orban’s comments, the Hungarian PM stated in a radio interview Friday morning that his government is nearing towards a financial safety net agreement with EU/IMF.
Pic.2 EUR/HUF D1 Chart
Technically the picture on EUR/HUF is pretty dull. On daily chart the trend is in sideways with key levels between 277-287. For shorter time traders the four week long direction might be tempting to push the short button with a target until the 282,50 support level where the 50 SMA and the middle of the channel might bounce back the price. A larger Forint sell off can start above the 286,60 resistance zone where probably a mass of buy limits are placed.
Romanian Leu (EUR/RON) – Weak economy and IMF warnings already reflected in the RON valuationRomania’s economy expanded by just 0.4% in the first three quarters, while q/q it posted a fall of 0.5%. Most likely it is the constructions, industry and agriculture that energized the downtrend, and the front view is not really encouraging. Growth for 2012 may be puny, if at all, entrenching a more sober outlook for the quarters to come, as Europe reels under austerity and local demand is limited by uncertainty, weak income growth and inflation. The CPI moved a step back in October, reaching 4,96% on an annualised basis, from 5.3% previously. While that ascertains the stable path of rates, it may be just a little respite. The market has also been erring on the prudent side as IMF stepped up the rethoric, announcing another agreement was not as-good-as done, and previous commitments have to be fulfilled before a new set of negotiations begin. Privatization of some state companies and private professional management, with reforms in the public sector remain on the checklist. However the market appears to be looking for some relief, at least over the short term, possibly from an improving global environment coupled with a gentle but firm push of the Central Bank.
In the technical perspective it may be noticed that resistance at 4.5455 has held, and a shooting star pattern could foretell a retracement, possibly around 4.5170 area. Stronger support is at 4.50, but it would take an important shift to break the level and aim for 4.4850. A range, whose upper limit could remain 4.55 for weekly play, might be in order. Next resistance is the 61.8% retracement at 4.5557 followed by the more important 4,5632, 70.7% recovery from the recent fall.
Pic.3 EUR/RON D1 Chart