Good week for EM currencies


Polish Zloty (EUR/PLN) – 4.15 is the crucial support

Russia-Ukraine, ECB (no QE ahead), oil prices – interesting things are going in December. In this sensitive environment, emerging currency prices remain rather stable with tendency for appreciation. In Poland, the main event of the week was the MPC’s decision to keep interest rates unchanged at 2%. Weird move although widely expected. Why weird? Well, all signs on earth were showing the economy was slowing down and lowering interest rates seems like the right move. On the other hand, recent macro data showed some improvement. As an example, the Industrial PMI increased to 53.2 points in November. I believe the MPC should have taken a longer period for analysis, not only the most recent data (one month at the most). In the statement after the decision, the MPC confirmed that recent macro indicators have improved. Also, the central bank expects inflation will gradually speed up and the deflation being experienced is just temporary. Additionally, the current global environment should help the Zloty appreciate. I believe that is not the scenario the economy will welcome with opened arms (Marek Belka, MPC’s governor, warned about the risks of an appreciating Zloty). Still, I do not expect a further decline of the EUR/PLN rate. Sure, the risks of a very weak Zloty have diminished, but at the same time I do not see why it would be gaining in the upcoming weeks.

We have to remember though, that the closer towards the year-end, the more the local currency can appreciate (funds closing positions, central banks making their last moves...). The upcoming week we are not expecting any important macro data from the local economy so the PLN will be dependent upon global sentiment.

As we see on the daily chart, the EUR/PLN started the week close to the 4.18 area but quickly it run south through the 4.17 support level. The Zloty kept appreciating till reaching 4.1482, its lowest level since July of this year. The market bounced as it reached 61.8% retracement level of the long upward move that began in May of this year. What is next? If the 4.15 support is broken, 4.12 will be the next target. On the other hand, the stochastic oscillator is showing the market is oversold and that we should expect a rebound. In this case, 4.17 is the resistance level the EUR/PLN could be testing next week.

EURPLN

Pic.1 EUR/PLN D1 source: xStation

Hungarian Forint (EUR/HUF) – Without significant fundamental news

This past week was pretty boring on the Forint market despite many impulses from outside. The government began the action of buying back banks, so that at least 60% of them are in local hands. (it started with announcing it will but the Budapest Bank). No other news hit the market so the HUF remained stable. More can happen in the upcoming week. From the perspective of fundamentals we expect a rather a quiet week, which may have a positive impact for the forint. We are expecting only two publications that can move the market: firstly, Thursday can mix the cards with inflation numbers which are not expected to change significantly. Friday's industrial production publication will be more important. This year, Hungary’s has been expanding production in a strong fashion so everybody expects another positive report. Recent macro data was not so optimistic though so this time the numbers could be surprising.

The direction of the EUR/HUF will be determined by the international trading sentiment. We expect a weakening of the Forint, which could start with breaking the downward trendline on the daily chart at 307.20. After 306.6 level.

EURHUF

Pic.2 EUR/HUF H4 source: Metatrader

Romanian Lei (EUR/RON) – Return of the Leu to the sliding trend

Assessing the currency at the end of this week shows that the episode of strength may have been temporary. As the market settles after the election and looks at the economy, some may shiver at the thought of disembarking from the IMF program. The government estimated deficit for 2015 is far above the 0.9% that the IMF wants, and to cover the spread between the two very unpopular measures would have to be taken. Otherwise, macro data has not been all that bad, with a pickup in IT services contributing to GDP growth and a rise in residential buildings. The natural trend of the market is likely to provide satisfaction to the National Bank’s view that Leu should slowly slide. The gradual resetting of trading ranges could bring us closer to 4.43 - 4.45 next week.

From a technical perspective, we are in a rising sentiment halo, pushing higher towards 4.4450. Stronger resistance is at 4.4525 and we may be getting nearer to the moment of truth. The bullish momentum may gain speed in the weeks ahead. In the meantime, any correction should encounter support at 4.4200. The trendline catches up at 4.4120 in the next few sessions.

EURRON

Pic.3 EUR/RON D1 source: xStation

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