PLN, HUF and RON: all depreciate

Polish Zloty (EUR/PLN) – CHF mortgages in the spotlight

The market has been pretty volatile this past week. If we look at the charts we can see that finally we got some larger movements, including even those more liquid currency pairs. External factors affected the Polish Zloty, but the most important ones, were local events. On Thursday, the new president, Andrzej Duda, moved into the presidential palace. Many hope for a new beginning and will follow closely if Duda delivers the promises he made during the campaign. The most important info came on Wednesday night when the parliament passed the act which will help Swiss Franc credit holders. It was a bomb to market participants. Still, the client will have the chance to convert his/her mortgage from Swiss Francs to Polish Zlotys (with the rate from the day of the conversion). The big news is that banks will have to cover 90% of the difference! In the first project, it was 50% which was expected the banks will have take as a loss. Also, in order to take advantage of the new act, the LTV (Loan to Value) ratio needs to be only 80%, not 120% as the first project mentioned. Additionally, the maximum size of the apartment was increased to 100 from 75 square meters. You can imagine what happened the next day. It was a black Thursday for bank equities on the Warsaw Stock Exchange – stocks of major banks declined from 5% to even 20%. Why so much? According to the first version of the project (the 50% coverage), the total cost of the CHF mortgages conversion for the banking sector was expected to be around 10 bln PLN (around 2.4 bln EUR). Now, that amount can double. Of course, the expectation is that banks will make up the lost income passing on the costs on customers. Also, the aid given to Swiss Franc mortgage holders does not seem fair to the rest of citizens who have not taken the currency risk years ago and took more expensive mortgages in Polish Zlotys. It creates a moral hazard at it seems it is worthwhile to take out risky loans in the future hoping the government will step in and save us. Now the project will go to Senate but I believe in the current form, it will not be passed. From the macro news side, we only got the Manufacturing PMI report at 54.5 points (slightly below forecasts) but it has little effect on the PLN.
As we see on the daily the chart, the EUR/PLN broke the 4.14 (38.2% retracement of the last long upward move) and advanced all the way to 4.19 (61.8% retracement of the last downward corrective movement). What now? Breaking the resistance should trigger a move to July’s highs of 4.24. If the market retreats though (there is a chance for that as the stochastic oscillator shows the market is already overbought), we could see a move back toward 4.14.

Pic.1 EUR/PLN D1 source: xStation

Hungarian Forint (EUR/HUF) – One to the left, two to the right

It was a hard week for the Hungarian currency. Only the MPC meeting minutes and retail sales data stopped the Forint negative movements this past week. As we see, Hungary reached the highest growth figure since the “non-working Sunday” law which came into effect on March 15th. The volume of retail sales in Hungary rose by 6.2% (yearly basis) in June, the Central Statistical Office (KSH) reported on Wednesday. The stats office reported that the volume of sales rose by 4.5% in food, drinks and tobacco stores, adjusted for calendar effects, which is quite an impressive increase. From the MPC meeting minutes we learned that 8 members voted in favor of reducing the policy rate by 15 basis points and 1 member voted in favor of maintaining it. The National Bank of Hungary sees strength in economic activity. On the other hand, consumer prices had continued to show low dynamics in June, rising slightly compared with both the previous month and the same period a year earlier. Hungary is still far from the targeted 2% CPI. July’s CPI could improve (what we will see next week) as forecasts range between 0.1% and 0.6$.

From the technical point of view, the EUR/HUF hit its two - weeks high (311.50) in the past few days. Our midterm outlook is that the currency pair will be moving mostly between the 307 and 312 levels. The NBH stopped the easing cycle two weeks ago so carry traders are really focusing on the strong resistance to buy, a little from the local currency, and 312 level seems a good opportunity for them.

Pic.2 EUR/HUF D1 source: Metatrader

Romanian Leu (EUR/RON) – Breathing the summer holiday air

Macro data embarked on a journey towards sunnier beaches, with an improvement in retail data, up 1.7% m/m s.a. and a 5.9% jump in new factory orders, while the National Bank decided to keep monetary policy unchanged and warned that it may have to react if policy gets too loose on the fiscal side. The unusual interference with the government, providing advice against raising public wages and social welfare payments while cutting taxes at the same time was put under the umbrella of the advisory role of high-profile figures such as the Governor of NBR, wary of repeating the same mistakes of 2008 which saw cash dwindle by government generosity right before the crisis, amplifying the drop in incomes and the severity of the adjustment. At present however, the RON seems not wanting to know about any of that. It is just happy close to but above 4.4000.. where it may stay for a while, before risk aversion possibly brings it closer to 4.4300.

Technical perspective offers a range between 4.4000 and 4.4315, with a narrower one being limited at 4.4150 to the upside. While the consolidation usually offers room for trend continuation, this time the NBR may be active below 4.4000, wary of enthusiasm that may be reversed afterwards. So a break below 4.4000 would be very relevant, possibly allowing to test 4.3823, whereas the more likely outcome is a rangebound move within 150 pips around 4.4150.