PLN, HUF and RON: Corrective movements or reversals of trends?

Polish Zloty (EUR/PLN) – will the trend continue?

The Zloty continued its modest weakening process this past week. Again, Greece is the main topic on the market but there are local factors that traders are taking into account. The MPC kept interest rates unchanged at 1.5% which was no surprise. At this moment we do not expect any moves from the central and any possible interest hikes (for sure not cuts, as the MPC stated) could happen next year if inflation kicks in. There are other two important cases that are being discussed right now. First, the rightist Law and Justice party presented its proposition of the bank tax. According to the statement, banks would be required to 0,39% of their asset base, which should increase the government tax income by around 4-5 bln PLN (1 – 1,2 bln EUR). There are worries (realistic) that banks would pass on the additional tax on to customers. Why we are talking about this? Cause Law and Justice has been gaining voters with the best example being Andrzej Duda winning the presidential elections. The other issue is the government proposal of how to deal with the Swiss Franc mortgage holders. The ruling party, Civil Platform, expects clients will be able to convert their mortgages denominated in Swiss Francs into Zlotys with the CHF/PLN exchange rate from the date the act will come into place and compare the amount of the loan with a PLN mortgage loan (half of the difference banks will be expected to cover, clients would cover the other half). Total cost of the conversion could amount to around 9 bln PLN (2,2 bln EUR). The Polish financial markets regulator (KNF) likes the idea.

Volatility on the EUR/PLN is still mediocre but the market is steadily moving higher. The PLN kept decreasing and the market tested the 4.23 resistance level but was unable to continue the upward move. Currently, it turned around and is being quoted around the 4.17 and if this support is broken, we would expect the EUR/PLN heading towards 4.15. The next target would be 4.13. For larger upward movements, the EUR/PLN would need to break the 4.23 resistance. Then, we would expect the market to target 4.25.

Pic.1 EUR/PLN D1 source: xStation

Hungarian Forint (EUR/HUF) – Comeback from the top

Moody's is currently reviewing its current Ba1 sovereign debt rating for Hungary. In recent years, Hungarian politicians and the market have equally paid great attention to debt ratings. Hungary's sovereign debt rating has been in the top junk category with all three major agencies. Now, the country has the biggest chance to rise up from this group. "Hungary would deserve an upgrade," Economy Minister Mihály Varga said in an interview with news station InfoRádió on Thursday evening. Varga noted that the market was much more up-to-date on the economic trends than rating agencies. One of the many signs demonstrating this confidence is that that yields are currently stable despite the Greek crisis. Economy Minister identified growth, fiscal balance and job creation as the key macroeconomic objectives of the Economy Ministry. There is no crucial local macro data for next week. Probably, news about the possible Moody's rating upgrade and Greece will control the EUR/HUF chart.

From the technical perspective, heavy Forint buyers appeared on the market friday morning. This momentum could bring more power to the Hungarian currency and the next target would be the 308-309 levels at the 100 and 200 DSMA. It seems many long transactions were realized at 318. If the EUR/HUF will remain under 313, we could see further Forint strengthening movement.

Pic.2 EUR/HUF D1 source: Metatrader

Romanian Leu (EUR/RON) – The bets were quite large

The resilience of the local Leu was initially seen as a testimony to the resolution of the National Bank to defend the 4.50 line. Now it proves to be pre-scient, with Greece close to getting financing so that it may end another act of the longer-run drama. EUR/RON fell by about 300 pips (around 0.7%), without having the confirmation of the deal. From the highs at 4.5000 we have seen a 1.3% decline, which is not small for the usually slow-moving RON, suggesting the previous bets on the currency were quite large. Actually, the yields on Romanian T-notes seems attractive now (about 4.2% for 10-year notes), if the Greece issue goes towards the back of the stage, and the local growth pick ups speed. There has been a 0.1% decline in industrial production but generally the trend for a plus 3% GDP advance is very much in place. A drop of 1.6% in monthly CPI is only the result of a decrease in VAT for food, which would further boost consumption. In case there is a positive outcome over the weekend there may not be much room to appreciate for the RON in the short run, while a different surprise would possibly bring us close to 4.50 and then even further. The first outcome seems most probable now, however.

Technical view raises just one question: when will this decline end? The momentum is to the downside, after a clear, long bearish candle continuing the break below the uptrend line, but a network of support levels may slow the enthusiasm of sellers. At 4.4315 seems to be the next support and a solid one at 4.4150 and 4.4000. The natural retest of the trendline would bring us to 4.4750.