PLN and HUF: sentiment decides

Polish Zloty (EUR/PLN) – testing the resistance

It has not been a good week for those going long on the PLN. The market ended its corrective movement and the depreciation continued. The main factor affecting the Zloty is the global bad sentiment towards emerging markets currencies, mainly due to the economic troubles of China and Turkey. On the local market the discussion continues about the CHF denominated mortgages project. It seems the Senate will not pass the act in the form the government presented it (banks would have to cover from their pockets 90% of the difference between the calculated CHF and PLN mortgage). The Central Bank, the regulator (KNF) and the Committee of Financial Stability all agree that the costs to bank of such action would be 22 bln PLN (5 bln EUR), lower taxes paid by banks of 3 bln PLN (720 mln EUR) and that the financial stability of the system could be threatened. So changes to the project will probably be made. The published macroeconomic data was not also encouraging. Although average wages increased in July by 3.3% (yearly basis, better than expectations), other data negatively surprised: PPI in July stood at -1.7%, industrial production increased only by 3.8% (yearly basis) while retail sales by 1.2% (also yearly basis). Not much has changed so we can state ironically that the situation is more or less stable. In this case, monetary policy is expected to remain unchanged until the second half of 2016. At least. There are voices that if the situation will not change much, the MPC might start hiking interest rates as early as 2017.

On the daily chart we see the market tumbled on Monday but was unable to break the 4.16 level. It rebounded and continued the upward move in order to reach the 4.20 area, close to the 4.21 resistance. Breaking would probably trigger a move towards July’s highs of 4.24. If the market loses some power and turns around, we should see a corrective movement at least to 4.18. The stochastic oscillator is reaching the point where the market is overbought so such scenario is possible next week.


Pic.1 EUR/PLN D1 source: xStation

Hungarian Forint (EUR/HUF) – Good start then a hard landing

At the beginning of the week the Forint continued its appreciation due to positive sentiment and approached the 307 support again. It seems Hungary’s budget deficit remained on high levels - the Central Statistical Office (KSH) posted a 70.8 bln HUF budget deficit in July, against a 37.7 bln HUF in the same month last year. Despite large June - July gap of 2.4% of GDP, the budget deficit target remains a realistic goal, an Economy Ministry state secretary told on a press conference on Wednesday. Furthermore, the Hungarian government has decided that foreign currency-denominated car loans and consumer loans will also be converted into Forints, Economy Minister Mihály Varga has announced on the same conference. The conversion rates will be EUR/HUF 309.2 and CHF/HUF 287.2. It seems that the Hungarian government is getting back to the unconventional tools again. The same tools that hit the currency in the past 2 days.

From the technical perspective, we can see the EUR/HUF cannot reach the mentioned 307 support at the bottom of the rectangle. Attacks for the 312 resistance is a more realistic scenario. The 200 DMA turned back the EUR/HUF and hurts the Forint so this moving average is the hardest support for Euro bulls now. The interest rate decision is coming up next week but we do not expect much deviation from the current levels.



Pic.2 EUR/HUF D1 source: Metatrader

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