Lots of action

Polish Zloty (EUR/PLN) – close to the 4.26 support

Traders are back from the holidays and right away we experiencing a lot of action. The Russian Ruble is in trouble again, the USD is appreciating and oil prices are dropping. The local PLN market does not want to stay by the sidelines and also provides trading opportunities. Although I got to say the market calmed down after the holiday period. Yes yes, during the Christmas break we had lots of action on the PLN market. Since local trading desks were closed, the London boys did some trading lifting the EUR/PLN almost to 4.40, its highest level since May of 2012. There was little liquidity, nobody on the PLN buy side, making all of us just staring at the quote going up and up. As the New Year began, the market obviously corrected this upward movement, though still remaining in an upward trend. No crucial macro data has been published from the Polish economy in the first days of the year but we got interesting statements from Andrzej Bratkowski, the most dovish MPC member. He stated the economy will slow down and a weak Zloty will not help. He is a huge fan of an immediate 100bp interest rate cut (from the current 2%) but knowing how conservative the MPC is, this scenario is out of question. Nevertheless, the EUR/PLN remains in an upward trend and I do not see a major turnaround coming up. The MPC’s monetary policy decision next week could cause some turmoil if interest rates are changed (cut). 

As for technical analysis, the market tumbled from the local highs and currently is fighting at the 4.26 support. It seems to me the market could rebound from this level forming a possible (local) double bottom price formation. The stochastic oscillator also suggests the market could be oversold. In this case, the first target for the EUR/PLN should be 4.30. Breaking 4.26 should take the market down back to 4.24.

Pic.1 EUR/PLN D1 source: xStation

Hungarian Forint (EUR/HUF) – still on the edge

It all began three weeks ago when the first news came out about the Russian economy "crisis". It has been a really tough time for emergency markets. Hungary's exports grew in November of 2014 and the surplus on the trade balance showed an increase to 76 million EUR (yearly basis). On the other hand, industrial production shows a slowdown in the short term. Anyways, the Hungarian currency showed some power during the second half of the week. Not only is the Russian crisis at guilt for the depreciation of the Forint. Investors are counting on more monetary-easing from the National Bank of Hungary. Moreover, inflation data is being published next week and analysts are still forecasting deflation (-0.4%), which is also a risk factor for the local currency. 

From the technical perspective, Forint buyers realized some of the profits today close to the 316 level, before the Non-Farm Payroll data publication. The key level is 317, which can hold back the euro bulls and stop the extreme Forint weakening. Probably, the EUR/HUF will stay close to the historical high (324) and will move in the 313 - 320 range next week. 

Pic.2 EUR/HUF H4 source: Metatrader

Romanian Lei (EUR/RON) – What the market wants, and what the NBR agrees to

We have seen a much more volatile RON the last two weeks, with a touch above 4.50. After the mostly well-estimated rate cut on Wednesday to 2.5%, the market actually rallied. Apparently, there are several tides in this market (some having to do with the global perception, some with the trade flows and quite a few with the National Bank) , and their superposition is what creates abit more ”life” in EUR/RON. While we have seen the market close to 2014 highs, we do not view a strong breakout at this time. In the months ahead a bout of volatility is however our base scenario. At the same time the USD strength took USDRON close to the record highs. 

The budget switched to a deficit in November and may be well on track to 2,2% of GDP in December, yet some macro factors were looking brighter, including stronger retail numbers and a fall in unemployment rate to 6.5%. The National Bank talked about stability, and given the sensitivity of the population and media to the RON value at the beginning of the year, we may see EURRON fluctuating around 4.47 to 4.49 next week, with the benevolence of the Central Authority. The longer term pressures are however on the downside, as the risk appetite remains contained and market gets to see further rate cuts ahead, and the market may have its way resuming the EURRON uptrend.

The technical perspective points to a natural pause of the uptrend, that is likely to resume if 4.4750 does not give way in the next few days. We view this support as vulnerable though, and cannot take out of the picture a push to 4.4525 on a spiky day. But the overall direction, even with a small detour, seems to be higher, so a break above 4.5000 is probably a matter of time. The next resistance is at 4.5210.

Pic.3 EUR/RON D1 source: xStation