PLN, HUF and RON: good week for emergings


Polish Zloty (EUR/PLN) – Zloty is on fire

This past week we observed a return of the Zloty to fundamentals. The last couple of weeks were pretty volatile and uncertain due to the Greek talks and capital flew out of emerging market economies. Now, it seems the situation is getting back to normal. The PLN experienced a big strengthening but it had little to do with the published local macro data. CPI inflation (yearly basis) in June stood at -0.8% (lower than expectations) while the Core CPI only at 0.2% (also worse than expected). At the same time average wages increased at a slower pace than it was predicted. Employment also declined and increased by only 0.9%. This is a worrisome sign although the wages factor could be attributed to the fact that yearly bonuses will be paid later on this year. Employment in June has been historically strong so we need to pay attention to the following months. On the other hand we had a surprisingly strong industrial production (for June, yearly basis) reading at 7.6% and a better than expected retail sales at 3.8%. Still, it seems to me it will take some time for the economy to pick up some inflation. Still, the PLN has been gaining throughout the week. The main reason was the improving global sentiment and the high chance to reach an agreement with Greece and its debt restructuring. It seems the troubled country will get another package of financial aid and this is calming down the markets (although the EUR is tumbling). 

When we look at the daily chart, we see how strong was the corrective, downward move. The market broke the upward trendline at around 4.17 and continued until it tumbled to the 4.10 area (50% retracement level of the last upward move). What can happen next? If the support is broken, the EUR/PLN should be testing 4.07 next week. On the other hand, it seems the market is oversold (as the stochastic oscillator shows) and we can expect a rebound. The target for the market will be 4.13.

EURPLN

Pic.1 EUR/PLN D1 source: xStation

Hungarian Forint (EUR/HUF) – Forint at three-months record highs

The result of the Greek referendum exerted downward pressure on the Forint. Hungarian economy’s performance is robust, its trade and current account surpluses are huge, public debt and external debt are on a declining path, and its sovereign debt ratings are expected to be upgraded back to investment grade in the coming months. Hungarian equities also gained on news of the Greek solution - the Budapest Stock exchange’s BUX index has climbed nearly 2% this past week. Behind the curtain, Goldman Sachs expects further weakening of the HUF, even towards the 322 area in a 6-month perspective. Based on the deterioration in Greece-related risks and following the NBH’s new easing measures, their medium-term view on the Forint remains moderately bearish. 

Probably, the National Bank of Hungary (NBH) would take the risk and will reduce the interest rate next Tuesday. That could be a good reason why Forint bulls stopped their attack at the 310 level. The daily 100 and 200 EMA will secure strong support for next week but we are expecting a short break down through the 38.2% Fibonacci retracement level to 305.

EURHUF

Pic.2 EUR/HUF D1 source: Metatrader

Romanian Leu (EUR/RON) – Feeling at ease above 4.40

We have seen the RON appreciating, as discussed last week, and within the lines of a somewhat slow line. As enthusiasm raised appetite for assets throughout the region, the yields on Romanian debt (some of the more useful investments over the last year) have gathered admirers, as we have indeed seen renewed interest in the local stock market. Is all well? Actually, not everything: retail decreased 0.1% m/m in May, although it is up 3.2% on the year, while construction output fell by 2.8% m/m (again very different m/y with a 7% performance). It is however estimated that the cuts in VAT for food products this year, and the fiscal stimulus provided next year through lower taxes would boost consumption. Some economists hope investment as well, yet that remains to be seen. We envisage a 4.40 to 4.43 next week range, given the votes are for the Greek bailout in the European Parliaments, which is our main scenario. Over time we may however reach more balanced levels around 4.44.

Technical perspective shows a regular range in its young years. Support stood at 4.4000, but any EUR/RON consolidation may test it a few times. We would in our estimation not see it breached, nor its upper 4.4315 level (although the temptation may be high to play a trick on EUR bears). The area gives enough room to play even with the RON spreads, so game may be lateral for some time.. On a break above 4.4315 next resistance is 4.4450, while below 4.4000 there is 4.3823.

EURRON

Pic.3 EUR/RON D1 source: xStation

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