The NBP again with no policy change

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The volatility of EUR/HUF decreased to 5 years low level during the last weeks. It was traded in very narrow range between 306 and 310. The main reasons behind the low volatility might be because the positive and negative risks are quite equalized.

The extremely low volatility of HUF warns for sudden movement of the currency and it may broke out from the above mentioned range of 306 and 310, which seems to be narrowing recently as 100-day moving average in increasing and means a technical resistance level on the strong side, while 50-day moving average is decreasing keep HUF on the weak side. So the upcoming monetary decision of ECB might be very important and in case of EUR/USD started to move towards 1.38, we see now bigger chance on short-term, that EUR/HUF might move even to around 302.5, where is now the 200-day moving average.

Today, regional markets eye two central banks meetings – the CNB and the NBP. As the Czech inflation remains well below the target as well as its forecast, the CNB can remain present low interest rates as well as exchange rate regime unchanged. The CNB is still satisfied with its new monetary policy regime and continues to point out imminent downside risks to inflation. The Board will discuss new inflation prognosis which could be less optimistic about inflation compared the current one. We expect that the CNB will decrease its inflation forecast for 2015 and will postpone its expected timing of the first rate hike and the fx regime exit. Thus far, the CNB plans to leave its exchange rate regime and raise rates early next year. We see such timing as being too early, at the moment. New prognosis can postpone expected monetary policy tightening by app. 6 months.

A meeting of the National Bank of Poland (NBP) will produce no substantial news. The NBP will reiterate its ‘commitment’ to keep interest rates unchanged until at least the end of the third quarter of the year, and NBP President Belka will support the overall dovish tenor of the meeting by his comments at the subsequent press conference. As regards any possible rate cut, Belka explicitly stated after the last meeting that, given the continuing economic recovery, the NBP was not considering such a move. The ‘commitment’ to keep rates unchanged until at least the end of the year, which is a very likely scenario, will not be extended before the July meeting, when a new forecast becomes available to the NBP.