Time for emergings to recover?

Polish Zloty (EUR/PLN) – breaking 4.19 trigger downward move

After weeks of turmoil and uncertainty, this past week was pretty straightforward as for the direction where emerging market currencies wanted to go. Despite the continuing (escalating? calming down?) conflict between Russia, Ukraine and the EU, global sentiment on financial markets (apart from Russian capital markets) was positive. Riskier assets and currencies kept gaining but is this a sign of trend reversals? It is too early to say. Especially that for global markets, more important than the situation in Eastern Europe is the economic slowdown of China and QE tapering by the Fed. Nevertheless, this past week was good for Zloty bulls. Not only global sentiment gave a boost to the Polish currency. The unemployment rate finally dropped below 14% (currently stays at 13.9%) while retails sales in February (yearly basis) increased by 7% (better than expected). Good macro data helped the Zloty but certainly does not change the general outlook – inflation remains low so I do not see chances for any monetary policy moves.

Analyzing the daily chart we see that at the beginning of the week the EUR/PLN broke through the crucial support of 4.19. It also broke the 200-MA, which triggered a stronger downward move towards its monthly low of 4.16. Currently, the market is rebounding trying to reach 4.18. The stochastic oscillator tells us the market is oversold and that the rebound should continue. If so, the target would be 4.19, the broken support (which became the resistance now). On the other hand, if PLN bulls continue to push, the EUR/PLN will be targeting 4.15 next week.

Pic.1 EUR/PLN D1 Chart

Hungarian Forint (EUR/HUF) – Forint buyers powered up by S&P

This past week started with shaky moves by the EUR/HUF, which can be seen on the graph on Monday and Tuesday. The Monetary Council of the National Bank of Hungary (NBH) has decided on Tuesday to lower the base rate by 10 basis points to a new record low of 2.60%. "We are almost at the end of it" but if "the environment potentially deteriorates significantly further there may not be room for further easing." - said Ádám Balog, Deputy Governor of the central bank (NBH). The rate cut was not a surprise so the Hungarian currency avoided further depreciation as traders had prepared for this decision (the EUR/HUF climbed to higher levels). Furthermore, when asked whether in a more stressful market environment a larger rate hike would be possible, Balog responded that "for now I do not see this as realistic scenario and stressful market." Also, it is not a big secret that the MPC’s interest rate target is 2.5%, so we can expect more cuts. Monetary easing brings good GDP forecasts for Hungary and stable credit rating by the Standard & Poor's. The S&P rating agency summed up the key reasons for its outlook upgrade as follows: S&P has revised upward the average GDP growth expectations for 2014-2015 to about 2%, mainly because of steady export performance.

From the technical perspective, the EUR/HUF is on its way to the 306 levels. At those levels we are expecting Forint bulls to cash in their gains and that take profit order will be triggered. This in turn will cause an upward corrective movement. The downward move is strong and if any correction was to happen now, it should not allow the EUR/HUF higher than 310. Breaking 306 could pull the market down to the next support at 304.

Pic.2 EUR/HUF H4 Chart

Romanian Leu (EUR/RON) – NBR takes a break, RON celebrates

In a manner that anticipated Friday’s decision of the National Bank, RON managed to gain more than 1% versus the Euro. Main rate was kept at 3.5%, “juicy” enough for those hungry yield-seekers, and minimum reserve requirements have been preserved as well. Some powder is left dry for another day. The Friday move down on EUR/RON was boosted as well by a 2.7% increase in Feb. 2014 vs. 2013 of building permits. Ukraine turmoil doesn’t seem to bother investors, and the feeling is pretty calm as of now. But the reaction may have been amplified by the NBR, in a bid to gain some buffer for RON if things get shaky. We may view a bit more volatility in April, and a re-test of 4.50, possibly next week.

The technical perspective is a bit reversal-ish after a test of 4.4450. If the hammer is to be trusted, a push toward 4.47, to the upper line of the downtrend channel, is rather probable. A break to the upside gets serious only on a close outside, with 4.50 offering significant resistance this time. Below 4.4450, support is at 4.42.