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Central European Daily

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Zloty and Forint ease in off−shore trading

Tue, Nov 3 2009, 10:22 GMT
by KBC Market Research Desk

KBC Bank

Headlines

Currencies: Zloty and Forint ease in off-shore trading
Fixe Income: Czech MinFin releases light issuance calendar for December

Czech Republic

The Czech koruna traded in a tight range at start of the week. There were no domestic drivers for price action, while the koruna decoupled from forint’s and zloty’s sell-off during yesterday’s off-shore trading.
Naturally, the weakness of the remaining CE currencies still poses a risk for the koruna today. The Czech currency is currently in a waiting mode ahead of Thursday’s central bank meeting, but the depreciation of other regional currencies could be a potential market mover. We should add that the market is going to shrug off today’s hot news that the Czech Constitutional Court has ruled positively on the compatibility of the Lisbon treaty with the Czech Constitution. It has effectively cleared the final obstacle for adoption of the Lisbon treaty in the whole EU.

As concerns the Czech fixed market – it remains calm ahead the upcoming CNB meeting. The market did not react both to the October budget figures and the release of the December issuance calendar. Recall that the MinFin plans to issue just around CZK 6bn of a 15Y benchmark, which put total gross domestic bond issuance at around CZK 200bn. The same level of issuance should be seen next year, so the market will rather focus on the first issuance calendar in 2010, which must significantly richer (by around CZK20 bn a month).

Hungary

The Hungarian forint tried to stabilize in the morning session and recovered to above the key 275.00 level for a short period, but it didn’t last long. Mixed signals about equity markets have kept players on the cautious side of the game and risk aversion kept it in the weakening mode.
In overnight trading the forint changed hands at the next key level of EUR/HUF 278.00, more than 1% weaker and signaling that the 1-week old weakening trend is still intact. The outlook is not much rosier for now and the market may keep an eye on the 200-day moving average of 282.00.

The Hungarian bond market had a stable day on Monday and low volume allowed yield levels to stay unchanged from Friday. Wide, about 30bps spread between bids and offers could however hide the real situation of the market and given the currency’s performance further bond weakness is likely.

Poland

The Polish zloty surprisingly failed to appreciate positive US ISM and subsequent gains of global equity markets. Also the improvement in the Polish PMI did go unnoticed in the market.. The Polish currency without any clear incentive weakened quite significantly in the late afternoon trading and the pair moved to the 4.30 EUR/PLN area. Some analysts say political and economic troubles in Ukraine could have weighed on the region ´s currencies as there is uncertainty around next tranche of IMF aid to the country. We doubt that it is a true reason for the sell off on the Polish market. We are more in favor of the explanation of waning out of global optimism in the middle of the US session and lower liquidity of the Polish FX market during offshore trading.
Guessing the short-term volatility of the pair becomes more and more tricky. Even as we may feel some relief from the markets today, the bulls on the global markets still look tired. In the mid-term we remain clearly bullish based on the domestic fundamentals, hence we think the pair should stay below 50-week and 200-day moving average.

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Published on  Tue, Nov 3 2009, 12:48 GMT