Volatility increases

Polish Zloty (EUR/PLN) – time for depreciation?

We are ending the week with a tragic story about the shot passenger plane over the Ukrainian territory. This event certainly affected the markets and increased volatility. Emerging market currencies received an instant hit but I believe the situation will calm down. Before this, the week was characterized by small movements. In Poland CPI inflation in June finally was higher than expectations (1% against a 0.9% forecast, yearly basis) but still remains low. Industrial production though increased roughly by 1.7% in June, which was much less than the expected 6%. Because of lower inflation readings and the dovish statements delivered by some of the MPC members, the yields of 10y government bonds began to decline in the last couple of months. The corrective movement of the downward trend of yields (second half of 2013) is gone and the market is down again close to 3%. The chances for the Zloty to appreciate in the next couple of weeks are declining. Although the major factor that affects and will affect is the Russia-Ukraine conflict which has intensified in the last couple of days.

Analyzing the daily chart, we see that after a couple of days of almost no movement, the market shoot up in one day climbing all the way to over 4.15 (61.8% retracement level of the last downward move). It retreated but I believe next week it will try to break this resistance. If so, the EUR/PLN will target June’s highs at 4.1730. The 4.1350 level should remain a strong support and I do not see the market falling below that.



Pic.1 EUR/PLN D1 Chart

Hungarian Forint (EUR/HUF) – First fiscal adjustment in 2014

Macroeconomic issues are back on the plate in Hungary. Government spending needs to be decreased in order to keep the GDP budget deficit target around 2.9%. Economy Minister, Mihaly Varga, would freeze 110 billion HUF mainly from the Investment Fund expenditures (some projects will be put off to next year). Out of the 110 billion, ministries will have to freeze 40 billion. This safeguard measures need to be implemented as economic data shows signs of slowdown and inflation remains low. It was not the Hungarian currency's best week not just because of the Ukraine - Russia conflict. The National Bank of Hungary still sees some space for further easing which can affect the Forint in the near future.

From the technical perspective, the 313 levels could be the next target for Euro bulls. Forint buyers are eagerly observing the 309 support, which is their chance for a downward move of the EUR/HUF. Breaking this level could cause the market to target 307. The market is still moving above the 61.8% retracement levels what is also an ominous sign for the Forint. Do not forget the MPC interest rate (2.3%) decision next Tuesday!



Pic.2 EUR/HUF D1 Chart

Romanian Leu (EUR/RON) – Full retreat of the Leu? Not yet

The market looked much more vivid this week than it does on normal sessions, let alone during summertime. The breakout above 4.40 only took a rest before the 4.4455 level, as the Romanian currency fell in an environment that saw perils of a wider budget deficit. Had the heated debate about the 5 p.p. cut in wages come at a different time, markets would have probably paid less attention. But now, as the Eurozone faces challenges and Ukraine maintains high susceptibility, the Romanian ”haven” appears to be less so reassuring. In a world that rediscovers volatility, RON may have more downside, yet with EUR/RON around 4,45 the market appears to be seriously more in line with the fundamentals. The National Bank also was direct in voicing support for a rate that does not hampers the trade engine of growth. The current account is a modest 0,35 bn. EUR deficit in the first 5 months, yet a tad worse than the 0.2 bn surplus of last year. The main view brings some volatility next week around 4.45, without reversing or massively continuing the trend. A retreat of RON at full speed may be some, not too much, time away.

Technical view paints a clear uptrend blocked by the significant resistance at 4.4455. A time-out may be in order to assert the trend again, so consolidation above 4.4150 is a relatively relevant option, providing symmetry with a previous rectangular area. Further support is placed at 4.4000 and 4.3804. A trader would however watch very closely the 4.4455 resistance, as the market would easily take aim towards 4.4710 on a close above aforementioned line.


Pic. 3 EUR/RON D1 Chart