PLN, HUF and RON: it is going on…

Polish Zloty (EUR/PLN) – EUR/PLN reaching yearly highs

All those who expected we are going to have a calm end of the year have to verify their plans now. The EUR/USD is moving back and forth affecting emerging markets currencies. The Zloty was under the influence of those external factors this past week although the internal situation plays a major role in its depreciation process. It seems the new government will want to deliver part of their promises (still, only partially of course) made during the campaign and in order to do so, expenses will increase. The budget deficit might go over the regulatory 3%, which can force the European Union to impose restrictions on Poland. It is also becoming pretty sure that the bank tax (based on banks’ asset base) and the retail stores tax (payable by large store chains; similar tax that was introduced in Hungary) will be introduced. With all this, the local stock index, the WIG20, is the worst performing equity market in the region. Foreign investors are also losing confidence in Zloty, which continued to decline this past week. It will be hard for the local currency to regain some ground towards the end of the year.

As we see on the daily chart, after blasting through the 4.30 resistance last week, the EUR/PLN experienced a corrective movement. The PLN had not enough power and the market continued its path north, reaching 4.35. That is only 100 pips short of its January, yearly highs. The stochastic oscillator shows the market is overbought and that we could expect a corrective movement next week. If so, 4.32 will be the support. There is high chance though that the EUR/PLN will continue its way up. Breaking the 4.36 resistance should open the way to next target – 4.40.



Pic.1 EUR/PLN D1 source: xStation

Hungarian Forint (EUR/HUF) – On the way to 320

We start by analyzing the local macro environment. Hungary’s headline consumer price index rose to 0.5% in November (yearly basis). The smaller-than-expected rebound, indicates inflationary pressure building up within the economy as prices of unprocessed food keep on increasing, which is likely to put an upward pressure on processed food next year. Furthermore, oil prices will remain an important driver of headline inflation in the upcoming months. If the decline in oil prices continues, it may put further downward pressure on retail fuel prices. We expect inflation to average 0% this year. Despite that, the Economy Minister, Mihaly Varga, has practically confirmed what his ministry announced on Monday: "Hungary’s budget deficit may be lower than the targeted 2.4% of gross domestic product." Compared to the end of October closing value, the EUR/HUF cross has hardly shifted this month.

The EUR/HUF currency pair finally picked a direction and broke the resistance. The range in the triangle was approximately 6-7 Forints in height so the resulting break up could be of the same size, possibly bringing the pair up to the 320 resistance. July lows (317-318) can show some Forint positive movements but the bias remains bullish in the middle term.



Pic.2 EUR/HUF D1 source: Metatrader

Romanian Leu (EUR/RON) – The game is on

Not only has the RON touched 4.49, but it also breached 4.50. We have seen a market more volatile than in many weeks before. There is some local and some global reason for this, yet the lesson we are provided with suggests this time (and especially next year) is different. We foresee notable risks of EURRON strength ahead. The budget in its current form needs a very strong economy next year in order to keep the deficit below 3% of GDP. Local macro data has been decent, with lower decrease in CPI than in the previous month, the pace being -1.1% in November, while trade deficit has increased to 6.4 bn EUR in the first 10 months of this year, 31.6% than the same time last year. But banks are worried about a legal initiative that may force them to suffer steep losses, while the ECB policy has helped the EUR throughout the region. The Chinese reserve shuffle and Fed rate rise do nothing to help the risk environment. EUR/RON seems to risk sliding more, before probably receiving some seasonal help towards the end of the week from returning workers’ fresh flows into the country.

Technical analysis shows a shooting star daily formation that may, if confirmed by a decreasing candle on Monday, suggest a temporary correction. We tend to keep in mind however the upward scenario, with a correction or even without it, as the violence of the breakway says a story of a strong demand for Euros. Any close above 4.52 also carries a symbolic meaning, showing that the National Bank does not (even if temporarily) defend the previous range. That would open the way toward 4.5350 or even 4.5500. Support now stands at 4.5000 and 4.4912, levels which we are familiar with: they were resistance levels just last week. 



Pic.3 EUR/RON D1 source: xStation