PLN, HUF and RON: stronger by year-end?

Polish Zloty (EUR/PLN) – balancing at 4.25

It was not a week we could have expected. The tragic events in Paris certainly affected everybody but markets have not reacted very strongly. The Polish Zloty continued its upward movement that began the previous week. It had to do mainly with external factors (falling EUR/USD) rather than local factors. Although it seems some things are clarifying after the elections. What is crucial for the local financial market is that banks will be taxed based on their asset base (as it is in Hungary). The idea of taxing financial transactions (FTT) will be dropped. That is good news cause if introduced, it would certainly kill the market. The published macro data has not changed the outlook for the Zloty. CPI in October was at 0,3% (yearly basis, in line with forecasts) while average wages increased by 3.3% (yearly basis, slightly lower than forecasts). The negative surprise came with the industrial production reading (2.4% increase against a 3.6% forecast for October). PPI slightly improved, this time to -2.3% from -2.8%. Positively surprising were retails sales which in October increase by 5% (yearly basis, analysts were expecting a 0.8% decline). So of course, the MPC cannot hike interest rates. Maybe a cut? It makes sense but I doubt the central bank will make such a move by the end of the year. Especially, that the government has changed and crucial financial issues are being discussed (ex. Where in the world find the money to keep the promises given during the campaign). I do not expect any local factors to influence the Zloty in the upcoming weeks. If no externalities cause the local currency to depreciate, we should observe a modest strengthening process towards the end of the year.

As we see on the daily chart, the EUR/PLN continued its upward move that began the previous week. The market reached the 61.8% Fibo retracement level of the last downward move (which was just above 4.26). Now, the market is trading at the 4.24 level. The stochastic oscillator is not providing a clear signal but it seems there is a higher chance for the market to decline. If so, the EUR/PLN will be targeting 4.23 and then 4.21. For an upward move to continue, 4.26 would need to be broken and the closest target would be 4.2750.



Pic.1 EUR/PLN D1 source: xStation

Hungarian Forint (EUR/HUF) – Forint feels the power

Today, Fitch Ratings will decide on Hungary's debt rating although Economy Minister, Mihály Varga, is not expecting Fitch Ratings to restore Hungary's investment grade rating. Fitch's decision will be released at 10 p.m. The fundamentals are supportive of an upgrade. Hungary has a disciplined fiscal policy, declining external debt, and a positive foreign trade balance, which means we have every chance of an upgrade. Hungary's budget deficit has been below the European Union's 3% of GDP ceiling since 2012, and the cabinet aims at a 2.4% gap this year. Hungary’s gross domestic product rose by 0.5% (quarterly basis) in the July-September period of 2015. What’s need to be noted is that Hungary’s inflation edges up more than expected. The consumer price index came in at 0.1% (yearly basis) in October, surprising analysts. Equity markets also have accelerated as the Hungarian BUX index has reached new highs in November (23000).

What shows the technical part? Forint also reached its monthly high against the Euro. Of course, it is not a huge glory because the European currency is still depreciating fast this year because of the ECB's quantitative easing programme. As we mentioned last week, the Forint touched the 310 levels and is still moving close to the 100 EMA. We are expecting more power on the Hungarian currency's side what could help the Forint bulls to touch the 307 - 306 territory exactly at the 100 EMA. Actually, that could be a strong support and the final stop for the local currency fans because the National Bank of Hungary is also easing its monetary policy which in turn keeps the Forint weak.



Pic.2 EUR/HUF D1 source: Metatrader

Romanian Leu (EUR/RON) – A bit of government stability, now what?

Romania has a new government. The local currency market rejoiced from this outcome, but only briefly. The main question of the deficit in the year(s) ahead remains, and it is quite thorny: even with a very optimistic growth estimate for 2016, seen at 4.1%, the structural deficit would be more than 1.7 points above the agreed 1% of GDP level in the MTO plan. So any slippage in terms of performance or public spending would put the country in an even more fragile position, just when the US starts to hike rates. The economy, boosted by healthier consumption and soon also by the higher public wages (whose long-term effect may not be particularly rewarding, given the raises above productivity) is on pace to accelerate next year, and jobs seem more easily available: the positions to fill grew 0.1 p.p to 1.16% in Q3 vs Q2. As the buffer to shifts in sentiment is thin due to the budgetar structure, we may face slight RON weakness pressure in the week ahead.

In the technical perspective, even if EUR/RON leaves the uptrend channel, it cannot truly forget it. It has been slowly re-attaching to it, although glued to its lower bound, on the outside. We may feel that the resistance at 4.4525 is too tempting for the market not to test it in the next few days and even 4.46 or 4.4750 do not seem impossible to reach. Support is easily found at 4.4362 and 4.4315, and more vaguely at 4.4223 and 4.4152.




Pic.3 EUR/RON D1 source: xStation