Headlines
Currencies: Polish zloty breaks EUR/PLN 4.00 barrier.
Czech Republic
The Czech koruna tracked the zloty and extended its gains as the EUR/CZK pair slipped below the 26.0 level just before the closing in yesterday’s session. The price action was almost exclusively triggered by the rally of the Polish currency, though there were some less important positive domestic figures (the January PMI and the outcome of the public budget).
As the EUR/PLN cross rate is testing key support levels, the koruna will continue to eye its regional peer(s). Should the EUR/PLN brake below the 4.0 support level in sustainable way, the EUR/CZK could dip to the 25.5-25.8 range.
The Czech yield curve steepened a bit at the beginning of the week. The only interesting local news (beside the fact of the firming koruna) for the domestic bond market was a surprisingly good performance of the public budget in January. The public budget reached a CZK 13bn surplus, while there was almost no surplus during the same period of 2009.
The Czech eco calendar is empty till Thursday, when the CNB will hold its interestrate setting meeting. Hence, the market will rather watch the koruna and core bond markets during next two days.
| Currencies | change | |
| EUR/CZK | 25.96 | -0.8% |
| EUR/HUF | 269.5 | -0.5% |
| EUR/PLN | 3.990 | -0.9% |
| USD/PLN | 2.860 | -1.5% |
| EUR/USD | 1.392 | 0.2% |
| USD/JPY | 90.5 | 0.1% |
| Bonds 2Y | change | |
| Czech Rep. | 1.80 | 0.00 |
| Hungary 3Y | 7.24 | -0.05 |
| Poland | 4.92 | -0.07 |
| Slovakia | 2.21 | 0.00 |
| Eurozone | 1.14 | 0.04 |
| USA | 0.86 | 0.01 |
| Bonds 10Y | change | |
| Czech Rep. | 4.46 | 0.00 |
| Hungary | 7.91 | 0.00 |
| Poland | 6.06 | -0.04 |
| Slovakia | 4.09 | -0.09 |
| Eurozone | 3.21 | 0.03 |
| USA | 3.66 | 0.05 |
Hungary
The Hungarian forint had a good start of the week. It seems to have ended a two weeks old losing streak. The forint tried to weaken in the morning session from 271.00 to 272.00, but the brighter global equity market sentiment together with the strong performance the Polish unit helped it to establish a new appreciating trend. The forint succeeded a steady uptrend till 269.50 this morning or more than 1% higher than yesterday. However, we would be cautious with the forint going forward as the long-term forward spread has remained high, which in the past was not a good sign for the sustainability of a strong forint.
The Hungarian fixed income securities advanced a bit with the stronger forint and yields declined about 5bps across the curve. The long-end is however still 15bps above this year’s low of 7.50% and 5y5y forward spread remained wide at 255bps suggesting that the market has not become more optimistic about long-term outlook, instead the carry play is at work. Bonds could perform well as long as the forint keeps its strength, but we would be cautious with them in the coming weeks, especially if the currency returns to weakening.
Poland
The Polish currency played with the key psycho-level 4.00 EUR/PLN yesterday. The better sentiment on the global equity markets as well as encouraging privatization news helped the pair to stay below this mark during US offshore trading. The ambitious privatization project should keep the Polish debt under the important 55% GDP level. Hence the news that the book building process for the sale of the electricity distributor Enea is scheduled for the beginning of the February was welcomed.
The overnight development on the Polish markets looks pretty encouraging for the sessions ahead. If the pair keeps its recent gains even in the case of renewed weakness on the global markets, the door is open for further gains. We see next technical support for the pair at 3.86 EUR/PLN (62.8% Fibonacci retracement).
