Polish Zloty (EUR/PLN) – MPC moves the Zloty

It seemed that the corrective movement on the zloty will continue as global sentiment worsened during the first part of the week. Then, the local MPC came into play. As expected (although the MPC surprised us before many times…), interest rates were cut by 25bp to 4%. The reaction of the market was modest, but the impulse came during the press conference after the decision. Marek Belka, MPC’s president, stated that the interest rates cut cycle is not finished, but after one or two more cuts the MPC will halt the cycle and observe how the economy reacts. So now, the target level for interest rates is 3,50%, not 3,25% as previously. That is important information as last year the PLN was also gaining thanks to the interest rate differential. Of course, much will depend on how the situation evolves and how the economy will be contracting (because it will…the question is by how much).

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Pic.1 EUR/PLN D1 Chart

As we see on the chart, the EUR/PLN corrective (upward) movement was denied at 4.13, where the market hesitated for a while. After the MPC’s press conference the EUR/PLN tumbled breaking the crucial support of 4.10 and reaching a weekly low of 4.06. The rebound towards 4.10 was caused by worsening global sentiment and traders closing short positions. What is next? I do not expect the PLN to test again the 4.06 lows next week. I would rather see the market testing the downawrd trendline which runs around the 4.11 level. Breaking this resistance will move the market higher to 4.13, with the next target being 4.15. Such scenarion is being confirmed by the stochastic oscillator, which is showing the EUR/PLN is reaching the „oversold” level. The upward movement scenario will be denied if the market declines below 4.10.


Hungarian Forint (EUR/HUF) – Economic minister unloved strong forint

After a weak new year’s start the Hungarian forint continued to underperform in the CE market. Regionally the koruna suffers from speculative attacks due to the CNB comments concerning market interventions aimed at weakening their own currency. Oddly enough some similar thoughts leaked out from the mouth of the economic minister György Matolcsy who is infamous among investors being an unorthodox politician currently preparing to take over the seat in the National Bank. The Forint started to tumble against all major counter parts touching a 7-month low after the minister stated it was a mistake from previous economic policy makers to use the forint strength in fighting the highest inflation level of the EU. Markets interpreted this as an official green light for weaker forint rates. According to the volatile forint movements it seems the market started to price in a new central bank president that would not be afraid to use uncommon monetary steps in order to promote the lowest growth potential. Until the election in March this fear will dominate the forint crosses scaring off investors willing to take HUF long positions.
Technically the H4 100 period moving average provided a great support for EURHUF bulls as the rally bounced off several times from this indicator. In the future break out traders might still dominate the charts putting higher and higher targets for their trades with specific historical peaks. Stronger resistance for considering a long exit is around the 78,6% fib retracement of the daily chart around the 300,20 EUR/HUF level.

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Pic.2 EUR/HUF D1 Chart

Romanian Leu (EUR/RON) – Those yields like magnets

Another week, another good run for the Romanian Leu against the Euro. In a world of abundant liquidity, the yields of around 6% on local treasury notes are too salivating to resist, especially now that the country appears to have put the worst of the much needed belt-tightening behind. Will the National Bank enjoy the show? Probably it would appreciate not having to defend the RON, but would also get preoccupied in case things get too far too fast.
While macro picture has been encouraging on some fronts locally – such as a fall in unemployment to 6.7% in November, there are still less favourable reports, such as industrial production which fell by 0.8% m/m in November. Overall the picture has been improving, with wages going up and encouraging consumption. The budget has been designed on a 1.8% growth and a EUR/RON rate of 4.5. While both targets appear optimistic to us, it looks like the market gave those views enough confidence. Or is it just the vast liquidity trying to get a home? Fact of the matter is the Bucharest Stock Exchange has seen one of its best starts to a year since the great bublle-ish times of 2007 and the mood is reflected in the currency. Trend should go on as long as global markets feel the good times roll again, or until the National Bank decides to turn the music a little bit lower.

A downtrend in effect, says the technical picture. Break of 4.40 led to a quick check of 4.3780, a 141.4% expansion, of the previous autumn positive impulse. The next level to watch is 4.3469, the 161.8% projection, but much stronger support is only seen at 4.30. The trend channel allows for corrections towards 4.3950, yet only a close above 4.40 would signal a return to the bullish path, with a further move to 4.4410 in the cards.

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Pic.3 EUR/RON D1 Chart