What happened to volatility?

Polish Zloty (EUR/PLN) – waiting for larger swings

So, it seems we are back to boredom on the currencies markets. After the previous weeks’ big movements, these last couples of days were really calm, at least on the emerging markets. Hoping this is not temporary and we will get some big swings from the market next week. In Poland, the press is excited about the changes in the government (which of course do not affect financial markets, just to mention: the Minister of Finance, Mateusz Szczurek, remained in his position). Important macro news were published but since they almost met expectation, the reaction of the PLN was mediocre. The unemployment rate in August slightly dropped to 11.7% while Retail Sales increased by 1.7%. These numbers do not shock the world. To confirm what most analysts were discussing – deflation should remain until November (according the Mateusz Szczurek, Minister of Finance). So that would be the local market. From our neighbors: the Poroshenko-Putin talks are going on and the situation in Ukraine seems to be calming down. That is good news to currencies like the PLN, HUF or RON. 

Looking at t he daily chart we see that there was not much going on. The market dived but was unable to break 4.17, from which it rebounded. In order to be back at the 4.20 levels, the 4.18 resistance should be broken. Breaking 4.20 should take the EUR/PLN bulls towards 4.22. On the other hand, if the market breaks the support, the next target should be the 4.15 area (61.8% retracement level of the last upward move). 

Hungarian Forint (EUR/HUF) – low volatility on the HUF

We expect next week to much more exciting on the EUR/HUF market than the past one. After several weeks, we see a chance for the Hungarian currency to strengthen against the major currencies although from the technical analysis it might look differently. This past week several news tampered the trading and the most important was that the Hungarian National Bank provided the amount of money, which will be directed back to the customers - the exact number is 942 billion forints. Viktor Orban, Prime Minister of Hungary, said that he is almost in daily contact with the foreign banks’ directors to solve easily and quickly the problem. On Friday, the Central Statistical Office (KSH) published the unemployment rate – it changed to 7.6%, the level at which it was before the financial crisis. We have to be careful with this number because if we do not count the public workers this number would be around 11%. Next week we do not expect any special macro data so we have to focus on the international geopolitical situation. 

From the technical perspective, we see on the daily chart a possible doji candlestick formation, which could turn back the EUR/HUF north. This past week the trendline has been broken and the market has fallen to 309.6 which is a key support level (here we find the 200 SMA, the Fibo 50% retracement level and previous peaks). The EUR/HUF bounced up and we expect to get back to 313.5. 

Romanian Leu (EUR/RON) – Waiting for the next interest rate cut

There is a soft range around 4.4000 in EURRON, with the market this week looking more like a controlled float than the officially seen ”managed float”. Without strong regional reasons to pursue speculative positions, and with all eyes on the presidential elections in November, the only datapoints of interest were the unemployment figures, a 6.7% Q2 rate comparing favorably to Europe, yet possibly a bit less useful as a large chunk of the population works in agriculture, and the 2013 4.8% increase in the average cost of labor. The main focus next week is the NBR meeting, estimated to offer another cut in rates to a low of 3%, with plenty of room given by low inflation readings. The RON is seen to be mildly on the defensive, given the rate move and limited global appetite for risk.

From a technical analysis perspective, a rejection from the southern border of the symmetrical triangle provides room for a move towards 4.41. Slight adjustments are now required as time passed and we are closer to the tip of the pattern. Although we see the market moving higher inside the triangle, if a breakout were to happen, the first target above 4.4200 is 4.4525. On the downside support is at 4.3920, 4.3820 and 4.3740.