It was volatile...

Polish Zloty (EUR/PLN) – rating outlook upgrade helps the Zloty

IGlobal markets were surprised with Wednesday’s FOMC meeting minutes and the voices of a possible decrease of QE by the Fed. Finally, James Bullard got some allies in his hawkish quest. The FOMC meeting minutes of course affected emerging markets currencies, but local factors also had their impact. In Poland, wages grew only by 0.4% in January on a yearly basis while Industrial Production increased by 0.3% (“improvement” from the tragic -10.6% in the previous month). So macro data still is not helping the hawks in the MPC and I do expect more interest rates cut to come. Positive news came from Fitch, which upgraded its rating outlook for Poland. Such statements delay the probable risk premiums increase that I expect to happen this year. The Zloty appreciated despite the falling stock market but it seems next week can change the situation.

Pic.1 EUR/PLN D1 Chart

The 4.20 level defends itself pretty well. The market tested it again this paast week but was unable to break this crucical resistance. The decline brought the EUR/PLN down to 4.15 and it is still possible the market will try to break 4.14. I expect the EUR/PLN rebounds and attacks 4.20 again next week. If this resistance is broken, the next target would 4.23. The stochastic oscillator suggest the market is oversold and that an upward move is possible. Also, if a bigger correction happens on U.S stock marekts, increased risk aversion will make the EUR/PLN fly higher.

Hungarian Forint (EUR/HUF) – outlook for the economy worsens

Investors trading on the HUF need to closely follow what is going inside the country as those recently provide impulses to the Forint. Markets are awaiting March 3rd, when Andras Simor’s (MNB president) mandate expires. The market expects that whether the successor will be Gyorgy Matolcsy or not, the MNB will be more willing to ease monetary policy in the near future, in order to support the government´s growth boosting plans. Those are widely awaited as macro data confirms the economy is struggling. The economy contracted by 2.7% in the last quarter of 2012 while unemployment reached 11%. These numbers are a big problem for the government ahead of the upcoming elections in 2014. It seems that cuts in personal income taxes, partially financed from bank taxes and others, had not helped the recovery of domestic demand, which collapsed as the forint weakened amid the crisis and payments on Swiss franc denominated household mortgages soared. Despite forecasts, demand for credit has not increased either. All these, along with increasing Hungarian bond yields caused the Forint to weaken the most in a week.

Looking at the chart, we see that the EUR/HUF approached the trendline but was unable to break 290. The market rebounded strongly to 293 and the short term potential upward move could be till 295. If this resistance is broken, the EUR/HUF will target the local highs of 298. A larger downward corrective movement will be possible if the support of 290 will be broken. Much more volatility is expected when the new MNB president takes over and new austerity measures will be announced.


Pic.2 EUR/HUF D1 Chart

Romanian Leu (EUR/RON) – Rather boring again

Waiting for the right signals, the Romanian Leu appears a little boring. Apart from Mondays, when the National Bank decides how much liquidity to feed to the banks, the market seemed more like a (very) distant echo of the global risk appetite. This week, it has been just enough to push rates lower and to lead to an unsuccessful attack of the 4.40 barricade. Later on, things smoothed out, the market did not find the reason to follow through as rates were expected to rise again in only a few days. The cold receipt of a MoF issue, with yields at 6.65%, much larger than analyst average target for 0.8 bn RON of notes has been assigned to the post-FOMC re-thinking of the risk trade. The effects on the market have been however limited. In order to move out of the weekly waiting area, there needs to be an outside push. If the outcome of the Italian elections is not well digested by the European investors, the Leu could suffer, and surpass 4.40 next week.

On the technical analysis view, there is a downtrend temptation inside the range of 4.35 and 4.40. Although the short-term perspective appears somewhat bearish due to the trend channel, any close above 4.3870 (the downtrend line) is not to be ignored, possibly leading to a move towards 4.400 or even 4.4073 (41.4% retracement). Above 4.40, resistance is found at 4.4410 and then around 4.48, the 70.7% retracement of the winter slide. Support is at 4.3536 and then a more serious one around the 4.30 area.

Pic.3 EUR/RON D1 Chart