PLN and RON weekly snapshot – moderate movements

Polish Zloty (EUR/PLN) – Złoty will be under pressure

It has been a calm week for the Zloty, compared to the previous ones. The Polish currency traded in a rather narrow, 4.35 – 4.38 range. The week started well as the published unemployment rate for June declined to 8.8%. Good news? Sure, but we have to keep in mind the strong effect of seasonal (summer jobs) factors. The Zloty caught the attention of Mark Mobius, manager of the Templeton Emerging Markets Fund, who stated he still sees depreciation potential for the PLN, especially against the USD. Why? Mobius mentioned the low interest rates environment. With this, he sees a chance for increase in exports and does not see the risk of the credit rating downgrade (unless debt to GDP extends over standard safety limits).  On the other hand, the perspectives for the Zloty are not so bad. The economy is not falling apart and there is positive global sentiment. Yields on 10y government bonds remain at a steady low 2.9%. Still, the PLN is not gaining as it could. The conflict around the Constitutional Court which increases political risk. This has to be solved if the government wants to avoid an intervention of the European Commission. So to summarize, the Zloty has both upside and downside potential. Not an easy trade, huh?

As we see on the daily chart, the EUR/PLN began the week by trying breaking the crucial 4.35 support. Being unable to do so, it rebounded to reach its weekly high of 4.38. What are the scenarios that we can expect? The stochastic oscillator is not giving a clear signal but we can guess the market is slightly oversold. If so, we should expect a depreciation of the Zloty and the EUR/PLN first targeting 4.3950 and then possibly 4.42. If the 4.35 support is broken, the closest targets are at 4.33 and then at 4.3150.

Pic.1 EUR/PLN D1 source: xStation

Romanian Leu (EUR/RON) – Moderate oscillations

The Leu has had a dynamic summer, until now, moving at a cruising speed at close to 4% per month, something that may be slow for some other currencies, but is not negligible in RON’s case. A correction of the recent strengthening is what we saw this week, mostly on a calming of speculative and seasonal inflows, as macro data has been less supportive: building permits fell by 9.5% in June over the same period in 2015, while the 0.2 point drop of the unemployment rate to 6.4% was not enough to reassert the RON’s position. It may have something to do with the arrest of one of the NBR’s top officials or maybe with concern over the fiscal position further ahead, after the stimulative effect of the aggressive tax cuts fades away. While we see risks to the upside over the medium term, EUR/RON may be looking for a wider range over the next week, bordering 4.45 as well as 4.48, at least as long as stock markets maintain their somehow ”rich” valuations in the developed markets.

Technical overview presents us with a fresh downtrend and a retest of the previous longer-term uptrend now offering resistance at about 4.4700. The pair seems to be seeking a new, wider range, as the 4 week-old slide may have lost steam. A break above the previous uptrend line could bring us toward 4.4850, while support can be found at 4.4400 and 4.4251.

Pic.2 EUR/RON D1 source: xStation

Adam Narczewski, CFA, PRM – Deputy Regional Director XTB

Balazs Balogh – Market Analyst XTB Hungary

Claudiu Cazacu – Chief Strategist XTB Romania