Corrective movements

Polish Zloty (EUR/PLN): low inflation still a problem

After weeks of appreciation, the Zloty caught a breather and rebounded from its yearly highs. Traders took their profits on short positions causing the EUR/PLN to rebound from 4.09 to over 4.12 during this past week. The main topic in the context of monetary policy remains inflation. Marek Belka, the MPC governor, mentioned that in July it can drop even to 0%. That is why it seems almost impossible for the central bank to return to having an inflationary target policy (currently at 2.5% +/- 1%). The confirmation of a possible deflationary environment came on Friday – CPI increased only by 0.2% in May (on yearly basis) which was (again!) lower than expectations. It also becomes more probable that another interest rate cut will happen this year (from the current 2.5% level). So far the Zloty has been strengthening but it was mainly due to the ECB’s monetary policy, rather than the local economies strength. People going for vacation abroad are certainly psyched. Inflationary pressure should be back since the economy is already experiencing growing demand. That will take time though. The MPC cannot feel safe and the best course of action should be another interest rate cut as soon as possible. 

Looking at the daily chart, we see the EUR/PLN rebounded from its yearly lows of 4.09 and continued to increase breaking the resistance of 4.1150 (38.2% retracement level of the last downward move). Currently, the market is heading towards the 50% retracement level at 4.1350. The stochastic oscillator confirms there is still some potential for an upward move. If broken, the next target would be 4.1550. In order for the EUR/PLN to make a solid downward move, the support of 4.09 needs to be broken. In this case, the target for the Zloty bulls would be 4.02.

Hungarian Forint (EUR/HUF): End of the recovery

Many events affected the HUF market this past week. First of all Hungary's inflation came out much lower than expected in May (-0.1% y/y). Additional taxes were confirmed by the Hungarian government - Prime Minister, Viktor Orban, has confirmed long-term commitment to special taxes imposed on the financial, energy, retail and telecommunications sectors. The government plan is to increase the number of jobs in public work schemes. The Forint is not reacting well to such information. Also, the Russia-Ukraine conflict is still on the minds of tarders. Russian tanks have crossed into the Rebel-held East and the global sentiment declined. The National Bank of Hungary is thinking about another interest rate cut and many analysts expect such a move in July. There is no crucial macro data to be published next week but the EUR/HUF could be volatile before the NBH monetary policy meeting which is expected be on the 24th of July.

From the technical analysis perspective, the EUR/HUF is expected to be running north aggressively. The pair touched the bottom of the sideways trend at 306 and it seems the Euro bulls want more and more. We are expecting an upward move with a target of 310. If this resistance is broken, the EUR/HUF will be heading towards 315. On the other hand, a decline should bring it back to levels it is being traded currently (305 – 306).

Romanian Leu (EUR/RON): IMF delays are not what they used to be

The government wishes to go forward with a planned cut in wage tax burden by 5% of gross income, starting October 1st. The financial resources to cover the budget gap of about 200 million EUR are there, the PM said. The IMF point of view is somewhat different, given their refusal to return for discussions until November. The market however, unlike in the crisis years, shrugged off the news. The target for fiscal deficit of 2.2% this year is not under heavy fire, and uncertainties surrounding the 1.4% target of 2015 seem too far away for the market to pay much attention. Trade data tells the story of decelerating export growth, yet the current account deficit is only fractionally higher over the first 4 months of 2014, at 0,298 bn. EUR. The yearly CPI fell below 1% in May, but this is also temporary, with the inflation estimated to move closer to the 2.5% target in the 2nd semester. Euro thus felt confident below 4.4 Romanian Leu units this week. If we are to take into account risks to global sentiment (Iraq worries feeding into oil prices, then altering global perception) one may be a little more mindful of a breach of 4.40 than previously.

In the technical approach, consolidation will push soon quotes outside a familiar trend channel. Would that be the end of the down move? No clear reasons for that now, as the match would be settled only on a push above 4.4455, which looks difficult to reach, given the serious barriers at 4.4000 and 4.4150. A range of 4.3804 – 4.4000 seems the most likely option, followed by a slide below 4.3804, calling into question the support at 4.3616. This is the technical view, at odds with the fundamentals next week.