PLN, HUF and RON: PLN and RON stable, HUF slightly more volatile

Polish Zloty (EUR/PLN) – Zloty strongest since December of 2015

The first quarter has ended so we risk a short summary of what has happened on the Zloty market during this time. In January, the market skyrocketed to reach 4.50 as traders realized the government plans to introduce their promises (bank tax, 500 Zlotys for each child and so on…) made during the campaign. The danger (which will turn into reality) is that the budget deficit will increase. In the following months the market calmed down and the Zloty regained ground. Now, it is trading at levels which it ended last year. The outlook for the economy has not changed much although the expected introduction of the “+500” plan should push consumption, which in turn could increase GDP by 0.1% – 0.2%. Deflation is not gone and it does not seem this will change over the next quarter. The question remains if the MPC will decide to cut interest rates from the current 1.5%, its lowest level in history. From what we hear, the current situation does not require such move but this view can change if in the following months deflation is not gone. Still, local factors are not as important now as they were in January. Traders focus on global sentiment and the Zloty trades depending upon global market movements. Taking all that into account, I do not believe the PLN can remain at the current levels next quarter. Sure, it is possible it will continue its appreciation path to the 4.20 – 4.22 area, but I see it heading towards 4.30 in the upcoming month. Just to mention what has happened this past week, the industrial PMI for March was at 53.8 points, which was higher than expected. 

As we see on the daily chart, this past week was one of the most volatile this year, which should be treated as irony. The market moved in the 4.24 – 4.27 range which is rather narrow for the PLN (from the historic point of view). Those levels are the lowest since December of 2015. So where the market can go from here? If the 4.24 support is broken, the market should be heading towards 4.21. On the other hand, breaking the 4.28 resistance should trigger a move towards 4.32.

Hungarian Forint (EUR/HUF) – under control

Two weeks ago the National Bank of Hungary made the decision to cut the reference rate to a record low (1.20%). After this movement, the Hungarian Forint started weakening very fast against the Euro. However, this past week the local currency has recovered. Hungary’s budget deficit was 625.5 billion Forints or 1.9% of GDP in 2015, according to the preliminary data published by the Central Statistical Office (KSH) on Friday. Economy Minister, Mihaly Varga, not just confirmed the statistical office’s data but also talked about a plan to balance the budget out. This is the lowest deficit as a proportion of GDP ever recorded in Hungary. On the other hand, Hungaryʼs seasonally-adjusted Purchasing Managers Index (PMI) fell to 51.7 points in March from 54.6 points in February. Among the sub-indices that comprise the PMI, the production volume index fell compared to the previous month, but still signals an expansion in production.

The Forint was trading at 313.51 to the euro at 1.30pm on the interbank market today, slightly strengthening from 314.07 late on Thursday. The HUF has rebounded and has recaptured ground in the last two days. On the daily chart, we can see the price action much better - the pair is trapped below the 61.8% retracement level and has failed several times to consolidate above this major horizontal resistance. The outlook is bearish in the short term.

Romanian Leu (EUR/RON) – still trading in the range

This past week could have been a game-changer on the RON market. It was not. The Romanian Leu has slightly depreciated by it remains stable. We were waiting for the finalization of the new banking law talks. It has been decided though that the report of the new law will be given on April 5th to the Chamber of Deputies. The main issue, as discussed, is the risk sharing between banks and consumers, which could endanger the economy, if the law is passed. Bottom line: talks about the new law will continue. There was no surprise from the MPC either. The central bank kept interest rates unchanged at 1.75%, but it was stressed out that the bank plans to narrow the fluctuation band around the monetary policy rate. It seems the MPC wants to send clear signal in the future about what the main interest rate will be. What can be done soon though, is cutting the lombard rate to 3% (from the current 3.25%).

As we see on the daily chart, the EUR/RON has steadily advanced this past week, reaching 4.47. Still, it is trading in a rather narrow 4.45 – 4.48 range since mid February. Only breaking one of those levels would trigger a larger move. At this moment, the EUR/RON is heading towards the upper level of the range and it is possible it will bounce back. The stochastic oscillator shows the market might be overbought and that we should expect a downward move. If so, the market should be testing 4.45 again next week.