PLN, HUF and RON: this time is the FOMC…

Polish Zloty (EUR/PLN) – local elections rock the market

As expected, the Prawo i Sprawiedliwość (Law and Justice) rightist party won the parliamentary elections in Poland this past Sunday. The biggest surprise was that none of the leftist parties got into the parliament. Now, the winning party will begin to form the government. What is the main issue from the economic point of view, is where will they get the money from to keep all the promises. The market expects that taxes will rise, also banks and big retail stores will be taxed. Are we going to have another “Budapest” (comparison to Hungary’s Victor Orban) in Warsaw? Many expect we will. The market is reluctant and rather skeptical about the future growth of the Polish economy in this situation. I guess we have to wait and see. Obviously, the market reacted to the outcome of the elections, rather negatively. External factors also impacted the local market. The most important event was the FOMC meeting, on which Janet Yellen gave a hint about a possible interest rate hike already in December. What happened afterwards, we could see on the EUR/USD chart. The PLN market reacted in a more stable manner but the Zloty was unable to gain momentum.

As we see on the daily chart, after the weekend the PLN began depreciating. The EUR/PLN reached the local high of 4.2950 but was unable to break it. The market retreated but remains close to this resistance level. Breaking it could trigger a move to around 4.32. On the other hand, the market seems slightly overbought (as the stochastic oscillator suggests). Also, the resistance seems strong. A corrective movement could take the EUR/PLN back to the 4.25 level.



Pic.1 EUR/PLN D1 source: xStation

Hungarian Forint (EUR/HUF) –Positive week for the Forint

Definitely the hottest story of the week is that the State of Hungary has sold off its entire stake in OTP Bank. A massive block of 14 million OTP Bank shares, worth almost HUF 80 billion, was sold on Thursday. The Hungarian National Asset Management Agency's sold its full package in OTP (5%). The share price of OTP Bank fell 5% on Friday's morning, after a stock exchange auction on Thursday. Currently, buyers became more active, reducing the gap to 4%. Actually we still do not know what was the government plan. There are some possible scenarios and explanations. The most interesting version is that Franklin Templeton Investments packed up and sold all their Hungarian FX bonds few weeks ago. This portfolio was worth almost HUF 80 billion, same as the OTP shares. The NBH actually has a foreign currency bond purchase programme as well, to complement the Self-Financing Programme so the market speculates that the NBH bought all of the Templeton's package and that is why the government got off from the OTP investment. As for the FX market goes, the current monetary policy is still not helping the Hungarian currency. The main reference rate would remain unchanged this year and probably the next one, rising to 2% by the end of 2017.

From the technical perspective, the top of the downward channel pulled back the Euro bulls and pushed the EUR/HUF currency pair below 310 again. The Euro is still trying to recover after the ECB press conference what is actually good for the Forint. If the market will finish this week under the 200 DEMA and below the 310 level, we would feel more short pressure with a short-term target of 308.



Pic.2 EUR/HUF D1 source: Metatrader

Romanian Leu (EUR/RON) – Higher, but how much?

EURRON has been gently first, then more determinedly moving upwards. Apart from the seasonal factors some suspect has to do with a higher rate being beneficial to the budget in this reference-setting period, the market view of the risk associated with Romania has shifted a little. As the fiscal easing is to continue next year with a cut in VAT and dividend tax, the markets partially share some of the IMF concerns on the deal. Will the deficit surpass 3% of GDP? That may be avoided next year, but what is the actual margin later on if the global environment becomes more pessimistic? That may be a concern. Not only local factors, but the approaching rate hike by the Fed may also play a role, as the growing unease in the region regarding the EU’s softer view towards Russia. That would not describe the full picture unless we add the declining trend of interbank rates with the ROBOR 3M indicator reaching record lows. Macro data showed a decline in perspectives for the manufacturing sector, a stable unemployment rate and 9.2% less residential building permits in September 2015 when compared to September 2014. We view near-term sliding pressure for the RON but the market may encounter a small correction around 4.45 before deciding if it really wants to move to another range.

Technically speaking, the upside is soon to be tested. The market clearly moved out of the previous range, but in doing so it has not yet met with strong 4.45-ish resistance, nor the projected width of the previous consolidation which strengthens the meaning of the 4.4450 resistance. We view this as occurring soon, and maybe the market will regroup for a while before attempting to move higher. The support is at 4.4315, 4.4220 and 4.4000.



Pic.3 EUR/RON D1 source: xStation