PLN, HUF and RON weekly snapshot – Yield hunger, a wave lifting CEE assets

Polish Zloty (EUR/PLN) – The new black sheep

The view over the Polish market is still complicated, mainly because of the pension plans structure. It now seems that Poland could take over the „black sheep of the EU” torch from Hungary. This week V4 ministers talked EU’s post-Brexit future in Warsaw (V4, Visegrad countries include Poland, Hungary, Czech Republic and Slovakia). The European Commission’s defense of a controversial labour market reform shows that the EU executive has not learnt its lesson on Brexit, Poland’s prime minister Beata Szydlo warned on Thursday. She also said that "We see the need to strengthen national control over EU decision making processes,". The relationship between the EU and Poland is getting more and more tense. What is more, the Polish Złoty is the only currency in region which is weaker since the British referendum. All Eastern Europe currencies have had a chance to recover from the Brexit chaos, with one exeption. However the current week brought some happiness for the Złoty, as risk on dominated traders desperate for yield.

EURPLN gave us a reversal from the 4.40 resistance perfectly according to our area of expectation and moved down towards our first target 4.30. The bias is neutral in nearest term. Immediate support is seen around 4.35 (daily EMA 200). A clear break and daily/weekly close below that area could trigger further bearish pressure testing 4.30 maybe 4.20 next week.

Hungarian Forint (EUR/HUF) – Between the lines

The ÁKK received HUF 85 billion worth of bids from primary dealers on a HUF 40 bn lot of 3-m T-bills at its weekly auction on Thursday. Actually this demand is a little weaker than in the last few weeks but the Hungarian bond market still seems strong. Furthermore few days ago we have heard from Hungary’s Economy Minister, Mihály Varga who said Hungary will be able to join the Euro area by the end of this decade. Varga talked about the conditions for adopting the Euro and the possible timing when Hungary could join the Eurozone. Actually there is no problem with price stability; Hungary’s inflation was 0.4% in the reporting period against the reference value of 0.7%. The budget deficit has been stable enough, below 3% of GDP. Anyway it seems that the Hungarian Forint getting stronger, dancing on the edge against the Euro. The global sentiment needs to stay optimistic to provide further interest towards the Forint.

The EURHUF lost significantly on yesterday’s trading session, and resumed the downward movement today, reaching fresh new lows. The pair could drop further because technically it has plunged below an important dynamic support. If the move takes us below the 313 level the Forint may be able to start another bullish movement (EURHUF sliding).

Romanian Leu (EUR/RON) – Stronger by its own standards

This week saw the RON strenghtening, by about half a percent, which is only significant by a snail-paced currency standard.. which may be a reasonable assumption in many of the Leu’s trading weeks. The move may be largely attributed to the global risk on sentiment, or better said the struggle to find any positive yield, and to inflows during the summer, including from local workers returning for holiday and a burgeoning interest in Romania as a tourist destination. The trend glides have possibly been accelerated by demand for a low-entry point (100 RON, aprox 22.5 EUR) cost per title, making it very attractive compared to previous offerings, several orders of magnitude more costly per instrument. The country’s retail oriented offering of 2Y Treasuries carrying a (now) juicy 2.15% rate has been oversubscribed 4 times with 7 days to close. While short-term the outlook may be sanguine, we view significant risk to the trend over the medium term.

In a technical view a break below the previous trendline would suggest further weakness, yet there still needs to be a break below 4.44 to clearly define a continuation. This may happen in the short-run, although generally EURRON takes a break after amove such as the one from 4.55 to 4.45. Further support may be found at 4.4251 and 4.4000. The trendline is the initial resistance around 4.46 followed by 4.4650. Although the picture may seem bearish now, it may be a good idea to follow the resistance levels closely in August.

Adam Narczewski, CFA, PRM – Deputy Regional Director XTB

Balazs Balogh – Market Analyst XTB Hungary

Claudiu Cazacu – Chief Strategist XTB Romania