PLN, HUF and RON: PLN among worst performers, HUF and RON fighting

Polish Zloty (EUR/PLN) – 4.50 reached

What a week on the Zloty market. It all started on the late evening last Friday, when the S&P agency lowered Polish debt rating (denominated in foreign currency) to BBB+ (from A-) and changed its perspective to negative. At the same time, Fitch kept its rating unchanged. S&P’s decision came as a big surprise and this past week we could see the reaction on the PLN market. The agency justified its decision by stating that the changes the government is undertaking will increase the budget deficit and that it is worried about the stability of the Polish economy. Many prominent figures stood up and argued that lowering the country’s debt rating was a political decision. Sure, aren’t politicians who make these important, economic decisions? The Deputy Prime Minister, Mateusz Morawiecki, stated the economy is in good shape and there is no reason to worry. Also, despite the weakening of the local currency, he does not see a reason for an intervention on the Zloty market. He mentioned though, he would like to keep the EUR/PLN rate in the 4.10 – 4.40 range. What else he could have said though? Another topic that is heavily weighs on the Polish market is the Swiss Franc act, which is expected to help troubled mortgage holders. In an television interview, Marek Belka (MPC’s Governor) stated the act is pure evil and it is a mistake. It will cost the banks (and in turn, consumers) billions of Zlotys at the time when it is not necessary. I agree. In light of all this, there was no other direction for the PLN than to depreciate. Not only the currency is hit by internal factors but also the local stock index, the WIG20, which dropped below the 1700 level, its lowest since April of 2009! Investors ignored published macro data although this past week some it was released. Core CPI in December stood at 0.2% while average wages increased by 3.1% (both yearly basis). PPI was at -0.8% and, what is was not surprising, retail sales climbed by 4.9% (Christmas time!). Also, industrial production increased by 6.7%, still lower than expectations. It is an interesting moment now as it is hard to forecast the direction of the Zloty for the upcoming weeks.

The EUR/PLN shoot up and reached 4.50, its highest level since January of 2012. The market eased a little bit and is currently moving in the 4.46 area. If the market decides to extend its corrective movement, it could test the 4.45 support level and if this gets broken, it would head towards 4.42. Again, the stochastic oscillator shows the market is overbought, but in the last two weeks it has shown the same. Still, the market continued to go up. What if it decides to continue its way north? The next target would be 4.60, highs from December of 2011. Is it possible? It sure is. If the government does not calm market participants, the uncertainly could lead to further sell out of the Zloty and nothing will stop it from depreciation. In order to regain ground, we need not only strong statements from government officials, but also action.  



Pic.1 EUR/PLN D1 source: xStation

Hungarian Forint (EUR/HUF) – Forint recovers

As the central bank took over ownership of the exchange, its Hungarian BUX index was hitting levels not seen since 2008. Actually, the risk-off sentiment did not impact the Hungarian market as we thought previously. The Hungarian currency accelerated gains versus the euro after ECB’s President, Mario Draghi, hinted that the bankʼs policy stance could be reconsidered at its next meeting in March, in view of downside risks. On the domestic front , the bond market also helped the local currency. 3-, 5- and 10-year government bonds were slightly supportive with average auction yields easing a bit for the first two tenors, and rising a little for the 10-year amid mostly rising demand. What is more, Hungary’s National Economy Ministry has published details of the 2015 budget balance which shows that last year’s shortfall was around 2% of GDP. The interest balance of the central budget was 38.1 bln HUF more favorable in 2015 than a year earlier and the balance is also some 14 bln HUF better than the target. 

Looking at the D1 chart, the price just broke the 100 EMA support at 313.15 today (Friday). From the technical view, next week could be bearish for the EUR/HUF and Forint bulls can attack the 200 EMA as well. Using the Fibonacci tool on the latest low and high swing (on the daily frame) shows that the 38.2% Fibonacci retracement level will be the next target under the 312 support.



Pic.2 Hungary's Core CPI from 2013 to 2016, Source: Tradebeat.com

Romanian Leu (EUR/RON) – A week of consolidation

Has there been any good refuge from the turmoil in global markets, recently? Yes, there was: it is called EUR/RON. Not necessarily uncorrelated with risk sentiment, but with a very (very) low beta, the RON proves to be an interesting asset within the larger portfolio diversification framework. It may not do much to improve returns, but it certainly does not give one a heartache. With the tailwinds from the cuts in taxation and increase in public wages, with the labor market (anecdotically) tightening it may seem as things are very different from the European and EM/DM market debacle. Quite to the contrary, if we look at the stock market; quite so, if we move our eyes towards the currency market. With yields and bank lending rates around a record low, there needs to be more than a hint of a dovish addup by the ECB to move EUR/RON off its current comfortable range. This may be true for the close future, however we see medium term risks to the local currency.

The technical view shows a possible conversion of an uptrend into either a triangle or perhaps, given enough time, a plain rectangle (lower limit 4.51, upper limit 4.54). A slight slide below the trendline is not to be ruled out giving the spotlight to the 4.5116 support level while further ones are at 4.5000 and 4.4832. Considering the long term, it is still possible to see a test of 4.5400 and even further, towards 4.56 (record highs around 4.5650, not that far away) - although the more distant ones are probably not for the following week (starting Monday, 25).



Pic.3 EUR/RON D1 source: xStation