PLN, HUF and RON: the post-NFP week

Polish Zloty (EUR/PLN) – MPC keeps rates unchanged

It was interesting to see how market will react to the much worse than expected NFP report from the previous week. Now we see, how just one publication can change the whole view of what to expect. The EUR/USD first corrected its upward move, then it began climbing again. Emerging market currencies were surprisingly more stable with the Polish Zloty gaining through the week. The main event of the week was the MPC’s decision to keep interest rates unchanged at 1.5%, its lowest level in history. Not much of a surprise there. Also, nothing new or revealing was said by Marek Belka (MPC’s Governor) during the press conference that followed the decision. The central bank does not plan to cut interest rates any time although the market view has changed. Now it seems the Fed might not cut rates in October (too soon after such a bad NFP reading…) so there is a chance that the Polish MPC will lower the cost of money. Will they do it? I do not think so but this is a possibility that is on the table. Still, the Zloty remains relatively stable taking into account what is going on global financial markets. Next week though we will have some “inflationary” macro data publications – CPI, Core CPI and wages. Expecting no big deviations from forecasts.
As we see on the daily chart, the EUR/PLN was unable to break the 4.26 resistance and retreated from the monthly highs. The corrective movement brought it down to the 4.2150 area and its heading towards the 4.20 support. Breaking it, would trigger a move towards 4.18, with the next target being 4.16. On the other hand, we could see a rebound. The stochastic oscillator shows the market is oversold and we should expect an upward move. If so, the 4.26 high could be tested again.

Pic.1 EUR/PLN D1 source: xStation

Hungarian Forint (EUR/HUF) – far from critical levels

The decline of fuel price drags Hungary’s CPI to negative territory again. September’s inflation surprised traders as it was lower than expected, yet in our view, the monetary policy implications of the release are limited. Headline inflation fell to -0.4% (in line with the consensus) from zero in August and was also lower than the NBH’s forecast of -0.2%. The reading hit the Forint a little at the beginning of the week, though the Hungarian currency regained ground and reached its 2-week highs at the 310 levels. The dovish FOMC meeting minutes provides some air for the EM currencies. Local macro news were of secondary importance in the past few days. Because of to the (supposedly) postponed rate hike by the Fed, we are expecting more Forint power next week.

The technical view also supports our positive Forint forecast for the next 7 days. If we take a look at the daily chart, than we can see a short downward channel that still determines the market’s moves. The 310 level (at the 200 EMA) will be the next tower to conquer for Forint bulls. If the EUR/HUF will break the support level, than we will have the road opened to 306 (August Forint highs).



Pic.2 EUR/HUF D1 source: Metatrader

Romanian Leu (EUR/RON) – will it breakout from the range?

The ”coziness” of the lion (Leu in local language means lion) cannot be underestimated. Any dynamic is hardly detectable outside a range of 4.40 to 4.42. As markets notice that the economy is moving towards a good year, and prepares for growth above 4% in 2016 they tend to indulge in holding RON although the country’s link to Germany via commercial ties, especially in the auto sector, make it vulnerable to VW after effects. There has been a lot of data reported locally, including a Q2 GDP q/q annualized at 3.4% (from 3.3% estimated initially), a jump in services by 0.6% m/m in August and a 1.3% jump in vehicles sales m/m. The economy seems to be on the right path, but as soon as global sentiment shifts, traders will pay attention to the fiscal easing and wage generosity of the government and take a more critical perspective on the RON. Since the Fed is not ready to pump up interest rates, and ECB is doing 60 bn. EUR injections a month, EURRON may lean towards 4.40 in the near term, although we view significant medium term risks to the upside.
In the technical perspective when speaking about support at 4.4000 and resistance at 4.4220 you pretty much sum up the price action. Which direction is more likely for a breakout? We tend to see now 4.4000 as fragile, which could, if any close happens daily below this level (not easy, given NBR defense, but who knows) open up the path towards 4.3823. A full target of the consolidation will be mathematically pointing actually at 4.3780.



Pic.3 EUR/RON D1 source: xStation