We see more action

Polish Zloty (EUR/PLN) – dynamic depreciation of the PLN

After weeks of low volatility, finally we saw some action on the currencies’ markets. The situation in Ukraine is far from being solved, same in the Middle East. Also, it seems investors are getting ready to get rid of stocks before QE stops (October), which can cause a deep corrective movement on indices. Sanctions against Russia plus corrective movements on Wall Street equals falling EM currencies. No support for the Zloty came from the published macro data – manufacturing PMI declined to 48.5 points. This publication is not a game changer but still it is a warning signal for the MPC. Maybe interest rates need to be cut one more time? Of course, that would depreciate the local currency even more. But again, internal factors are much less important for the PLN taking into account what is going in Europe. The economy can be hit by Russian embargoes (already halted import of fruits and vegetables) so in the short term we cannot expect a sudden appreciation of the Zloty.

Looking at the daily chart we see that from the beginning of the week the EUR/PLN trended higher. On Thursday it broke through the resistances at 4.1550 and then 4.17. On Friday, the market reached 4.19, its highest levels since mid-May. What is next? Well, a possible corrective movement (so the market catches a breather) could take the market back to 4.15 but then I expect an attack to break 4.19 with the next target being at 4.21.

Pic.1 EUR/PLN D1 Chart

Hungarian Forint (EUR/HUF) – Record highs coming

Ukraine and Russia are still causing a headache for Hungarian stock and currency markets. Hungary’s exports to both countries have significantly lowered in 2014. Actually, the most hurt areas of the economy are the bank and pharmaceutical sectors. This past week, OTP (largest Hungarian bank) and Richter (largest Hungarian pharmaceutical company) fell almost 4% and the prices are still close to important supports. Local macro data and news had not provided much support of HUF buyers as the government finally published the amount of the relief package for FX borrowers, which will be 900 billion forints. FX borrowers should be compensated only for what has been unlawfully charged by the lenders. We all knew that if the government saves the FX borrowers, it will hurt the Forint. The local currency depreciated strongly and some analysts already buried the Forint. They expect record highs of 340 against the Euro but first let’s take a look at the chart.

Analyzing the weekly chart we see that the Forint touched the March record lows on Thursday and the Euro bulls are still showing power. According to the fundamental background, we expect hard times are coming for the Forint. If the EUR/HUF breaks the 315 resistance, traders could see the record lows from 2011 at around 324. A downward corrective movement could bring back the market to 310. The upward movement scenario is more probable taking into consideration all of the above factors.

Pic.2 EUR/HUF D1 Chart

Romanian Leu (EUR/RON) – Sharp reversal, looking dangerous for the Leu

When is the RON sold sharply without National Bank intervention? Whenever the foreign investors’ sentiment changes abruptly. We have seen this week a reversal of the previous pro-RON positioning as the good news of the wider visibility of Romanian bonds wore off and real jitters about Romania resurfaced. This happened despite a fall in the unemployment rate to 7.1% and smallish signs of improvement in the constructions sector. Floods in the South and South-East compounded however worries about the budget deficit, yet there seems to be another reason for the move higher of EUR/RON. The Leu might have been swept away in a regional move, with wording from a US official that Romania may be destabilized hardly providing any relief. With a worsening of sanctions towards Russia, the CEE regional appeal diminishes markedly. We view the RON under pressure next week, but less likely to give away as much ground as it has this one.

Technical analysis displays a massive (in EURRON style) rectangle with a width of about 700 pips. This brings a whole new meaning to the 4.4455 resistance, and we view a breakout as a serious signal for a push towards at least 4.48 (half of the full target). A return towards 4.4000 looks statistically plausible, but the speed of the upturn now sets the tone for at least a test of the resistance, with a probable breakout in the followup. The line of defense of 4.4000 is preceded by 4.4150 and followed by 4.3900 and 4.3735.