A couple of Polish numbers were released on Friday

EMEA Daily

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A couple of Polish numbers were released on Friday. Retail sales surprised on the upside, growing 6.4% y/y in June compared with the consensus expectation of 4.1% y/y. Unemployment dropped a bit in June to 11.6% from 11.9% in May. Both numbers confirm that the recovery in the Polish economy continues and that rate hikes have moved closer.
Friday brought more bad news regarding the situation in Hungary as the two rating agencies Moody’s and Standard & Poor’s both came out with warnings that they could downgrade Hungary’s credit rating on the back of the breakdown of talks between the Hungarian government and EU/IMF. Unfortunately, the Hungarian government once again demonstrated that it does not seem to take the concerns of investors, lenders and rating agencies seriously as Economics Minister Gyorgy Matolcsy said that the rating agencies “don’t understand” that fiscal responsibility needn’t come at the expense of independent economic policy. Telling rating agencies that they don’t understand is not going to do much for the credibility of economic policy in Hungary.

Preview

Not much on the agenda today in the region other than Hungarian retail sales. We expect the Hungarian retail sales numbers to confirm that the Hungarian economy and domestic demand in particular continues to be very weak.

Scorecard-based trade of the week Buy CZK/ZAR

The Hungarian forint once again was the big loser on Friday as the warnings about possible downgrades hit the Hungarian markets. We remain bearish on the forint and EUR/HUF could easily move above 300 soon if the Hungarian government does not take action to reassure investors that it is serious about getting back to negotiations with the IMF and EU.
On Friday we recommended investors to buy CZK/ZAR based on the scores in our EMEA FX Scorecard. We keep that trade open and with EUR/USD inching up towards 1.30 again, the trade is getting a bit more tailwind. In our view, we could be heading for a larger negative correction in the South African rand sooner rather than later.

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Published On Mon, Jul 26 2010, 09:08 GMT

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