PLN, HUF and RON: will the Fed make the move?

Polish Zloty (EUR/PLN) – weakness of the Euro pulls down the EUR/PLN

We getting closer towards the end of the year and the main topic on the market is the Fed’s decision regarding interest rates. Many believe there is a chance for the first hike in years and the market could be playing this scenario. This is weakening the Euro, which in turn affects emerging market currencies like the Polish Zloty. On the local market though, the main event of the week was the swearing-in of the new government and the resignation of the old one. Now the talks about the introduction of campaign promises is under way. Financial markets are most interested in where the new government will find the money to finance those projects. Like the 500 PLN (120 EUR) planned to be given for having a second child (even though during the campaign it was promised for every child…). Also, we all wonder of the bank tax (based on bank’s assets) will be introduced or its alternative, the financial transaction tax (which in its projected form is ridiculous and can kill the capital market). We will get to know much more pretty soon. As for macro data publications, we learned that the Polish GDP in the 3rd quarter grew by 3.6%, which was in line with expectations. What has improved a little bit, was the CPI, which in October stood at -0.7% (against the forecasted -0.8%). This of course does not change the plans of the MPC (keeping interest rates low).

From the technical perspective, we see the EUR/PLN was unable to break 4.2750 and it turned around reaching its weekly low of 4.21, rebounding a little bit by the end of the week. To be honest, it is not the strength of the Zloty (which at this moment carries some political risk) but the weakness of the Euro that drove the pair down. The next support levels are at 4.1950 and 4.17. If the market rebounds (the stochastic oscillator might be suggesting this scenario), the closest target will be 4.25. This scenario is probable as the last corrective movement equals in reach a similar corrective movement from August-September. 


Pic.1 EUR/PLN D1 source: xStation

Hungarian Forint (EUR/HUF) – more than positive

This past week the Forint returned in good condition, better GDP data, an upgrade from Moody's and so on and so on. Hungary’s gross domestic product rose by 0.5% (quarterly basis) in the July-September period of 2015. Previously, we had even an 0.7% index in the first half. The contribution of the industrial and the construction sectors declined, while the role of household consumption grew. Furthermore, consumer prices in Hungary rose by 0.1% (yearly basis) in October what is still low but this evens out last month when we had some inflationary pressures. Of course, it is not enough to change our monetary policy but Hungary showed some good macro reports this week, which are closely monitored by the National Bank of Hungary.

From the technical perspective, we can see that the EUR/HUF broke the 215 resistance only twice in the last 2 years. The first time was in December of 2014, the second time happened was in June. Actually, the currency pair never stayed longer than 3-4 weeks above 315. After the better local macro data and the unbroken resistance we are expecting more power from the Forint side. Of course, because of the loosen Hungarian monetary policy, the EUR/HUF cannot fall back under the 300 level but it could remain close to the 310 support.


Pic.2 EUR/HUF D1 source: Metatrader

Romanian Leu (EUR/RON) – Something is in the making

There used to be a time when EUR/RON could not surprise anybody. Not anymore. The recent volatility may not appear too large for somebody following, say, the Turkish Lira, but is has definitely provided some speculative interest. As the political uncertainty installed after the fall of the previous government receded once a new PM was designated, the market tried to assess the risk profile of the next weeks. And there is a lot to worry about, given the speed and ease which characterized the Parliament’s vote for a uniform 10% rise in state personnel (apart from teachers and doctors, who get even higher raises) while the new government is still in the making. On the macro front we have seen a CPI reading of -1.6% y/y reported this week, which may at some point encourage more easing form the National Bank (especially if the political stability fails to return, and protests continue). Overall the economy is poised for decent growth this year and Friday’s data confirmed this hypothesis: GDP grew by 1.4% q/q in 3rd quarter, while the yearly pace was 3.6%. The local currency has shown it can offer a little bit of speculative interest, and this may prove to be the only constant in the weeks ahead. We view a slight RON-favorable correction in the next few days, but feel that the global risk appetite may soon start to weigh on the Leu, and the uncertainty about the deficit (next year, a VAT cut adds to the fiscal easing) could gradually inscribe EUR/RON on a move higher.

In the technical perspective we have note that the market has indeed (as discussed last week) moved higher, and the new playground has been largely the 4.43 – 4.4500 area with only slight spikes outside it. The uptrend channel is a useful thing to watch, providing support at 4.4315 and resistance at 4.4550 early next week. Further support is at 4.4220 and 4.4150. We may over time re-test the recent highs at 4.4600, and while this may not be immediate, over the medium run we see a decent chance of a break towards 4.4750.


Pic.3 EUR/RON D1 source: xStation

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