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Polish Zloty (EUR/PLN) – Resistance at 4,20 not broken

Another week goes by and the same factors are moving markets. This time though, the news are positive. It seems there is a light in the tunnel for the Russia-Ukraine conflict. After the talks in Minsk we expect an agreement can be reached, in which case we would avoid the war scenario in the East. Also, the talks between Greece and the European Union are moving forward and there is a big chance for an agreement to be reached. The positive news supported emerging market currencies. They helped to stop the Zloty depreciation, which started from the beginning of the week. The EUR/PLN kept climbing from its weekly lows of 4.15 to struggle at the 4.20 resistance level. The depreciation wave took the market higher (to its weekly high of 4.22), but Euro bulls lost momentum causing the EUR/PLN to retreat. Supported by the news from Minsk and about Greece, the market retreated and is heading back towards 4.15. By the end of the week though, we experienced a slight rebound. The published local macro data had rather little impact on the Zloty. What is important is the impact it can have on the MPC. CPI at -1.3% in January means that the MPC should cut interest rates in March. The question is by how much. I expect two 25bp cuts in a row since deflation is not disappearing.

As we see on the daily chart, the EUR/PLN has been steadily climbing since the beginning of the week until it was stopped at the 4.20 resistance. The weekly high of 4.22 was reached but the market lost its power and the Zloty regained ground. On Friday, we are observing a slight rebound back towards 4.18. If the market continues its way north, then it will struggle at 4.20. If this resistance is broken, the EUR/PLN should be heading towards 4.2450. The closest support is at 4.15 and if it gets broken, the next target will be 4.13.

Pic.1 EUR/PLN D1 source: xStation

Hungarian Forint (EUR/HUF) – Better than expected!

This week began with Prime Minister, Viktor Orban, announcing the plan to cut the bank tax and buy a stake in Erste Bank Hungary. Orban is promising a reduction of the bank tax and increase the transparency of policies. With this plan, the government plans to cut the charge by 60 billion HUF next year from 144 billion HUF. Due to this news, Hungarian stocks (especially, OTP Bank shares) are close to finishing this week in strong pluses. As for the Forint, it remained stable and “saved” the 306-307 levels against the Euro. Furthermore, the Forint could remain strong because of Hungary’s Q4 economic growth reading, which surprised market participants. Hungary’s gross domestic product (GDP) grew by 0.9% (quarterly basis) in the October-December period of 2014. We see more demand on the Forint side but need to keep in mind that the external factors (Greece, Russia-Ukraine) also contribute to the gaining Hungarian currency. The only question left for next week is the one about the Greek bailout program. We are confident that if the EU settles a deal shortly the Hungarian currency could probably break the 306 support.

The technical analysis picture also foreshadows more downward movements. The 310 level is still looking as a strong resistance level till until the MPC does not change their mind and cuts the base rate. The drawn Fibonacci levels and moving averages show the possible outcomes. The first stop could be at 304 (50 Fibo and 100 WEMA), afterwards the market could be testing the 295 support (61.8 Fibo + 200 WEMA).

Pic.2 EUR/HUF W1 source: Metatrader

Romanian Leu (EUR/RON) – Value found?

Our EUR bullish opinion was even surpassed by market action, with RON reaching close to 4,5 units/Euro. There seems to be a return of a regional risk premium to which the RON blinked, undercut by the ceasefire in Ukraine. The actual return on Euro sentiment may have to do with a large number of factors, including a re-pricing of a neighbor to Ukraine country risk and a further dovish NBR action, probably through reserve requirements. The inflation rate fell to 0.4% y/y and coincidentally, m/m as well. On a monthly basis, this represented the first improvement in 3 months yet it remains far below the target. GDP data showed a revision of 2014 to 2.9% growth from 2.3%. The current market perception is closer to fundamentals in our view, and that leaves oscillation room around 4.44 the main scenario for the sessions ahead.

Technical analysis view shows a test of 4.4450, the highest resistance previously mentioned. As the market seeks to find balance, we view a lateral area between 4.4200 and 4.4600 as the most likely outcome. The trend channel is left aside, and a jump to 4.4525 is possible, however the energy after a correction of almost 50% may dwindle. In choosing a side, the upmove may still be favored, for a limited time, with 4.4750 a relatively far away barrier. Support set at 4.4200 by previous lows and resistance is enhanced by 4.40 and 4.3820.