Central bank events could provide important news for the EUR/USD

On global markets: This week, central bank events could provide important news for the EURUSD. ECB Chief Economist Peter Praet is scheduled to make two speeches, possibly providing insights on the ECB's assessment of the economic slowdown. The economic slowdown in the euro zone in the second half of 2018 was significantly stronger than originally expected and lowered the starting position for 2019. On the other side of the Atlantic, the Fed chairman will give his testimony on the economy and monetary policy to the US Congress. The most important macro indicators will be February PMIs for the Eurozone and large member countries.

CEE currencies: In Hungary and the Czech Republic, where core inflation either reached or even exceeded 3% according to last week's data, markets have started to believe in more aggressive monetary tightening, which propped up local currencies. On the other hand, the Polish zloty fell last week; inflation is still below 1 percent there, which does not support any tightening. Thus, the zloty was the most exposed to the ongoing strength of the US dollar. However, low inflation is not a surprise in Poland, and thus there is little domestic reason to believe that the PLN will fall further from current levels. The Serbian dinar also appreciated a bit last week, but we expect the NBS to tame any pressures, should they arise from any direction. Thus, the EURRSD could stay between 118.0 and 118.5 in the coming months. For Hungary, as we think that the MNB will start tightening later or less aggressively than the market currently assumes, we believe that levels below 320 for the EURHUF are a bit too low, so some forint depreciation could come. As for the Czech Republic, however, we stick to our view that the relatively high interest rate differential should give a boost to the koruna and the EURCZK should continuously fall in the coming months.

CEE rates and yields: Despite the fact that Bund yields went down towards the end of last week, in most cases, we saw yield increases in CEE w/w. Of the 10Y yields that went up, we saw them rising to an extent of 6-12bp. This is mostly attributable to increased interest rate expectations (mainly in the Czech Republic and in Hungary), courtesy of relatively high inflation readings. In Romania, yields went up to a lesser extent. Bond auction results show markets still in some uncertainty in Romania. A 336-day T-bill auction saw the rejection of all bids put up for a planned amount of RON 400mn, while the 5Y RON auction went well, as RON 320mn was sold at an average accepted yield of 4.29%, with a bid-to-cover of almost 2.3. The budget for this year was passed at a planned deficit of 2.76% of GDP, assuming a 5.5% real GDP increase, which seems extremely optimistic. We maintain our view that yields should increase from current levels in Romania. As for Hungary, we slightly cut our 10Y yield forecast, however, as German Bund yields remain pretty low.

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