Higher volatility means more trading opportunities

Polish Zloty (EUR/PLN) – still in a wide range

The market has calmed down after the ECB shocking actions, now we are looking forward to next week’s Fed meeting. But I have to say that Janet is not Mario so do not expect a revolution. Still, volatility on fx markets has increased in the last couple of weeks and it can be seen on emerging market currencies. In Poland, the main topic remains the changes that will happen within the government. The President of Poland accepted the resignation of Donald Tusk as Prime Minister (who will take over Van Rompuy’s job in the EU) and know we all wonder how the new government will look like. It should not affect the Zloty market though. No macro data from the Polish economy has been published this past week so traders focused on external data and events. We observe large movements towards USD-denominated assets. Yields of US 10y government bonds are increasing and this affects currencies. Much of this capital flow happened on Tuesday and most emerging market currencies (PLN, HUF, TRY…) depreciated rapidly. The market calmed down but the fundamentals do not look good for the Zloty. Technical analysis on other hand has something else to say.

As we see on the daily chart, the EUR/PLN rebounded from the support at 4.1750 (41.4% of the last upward move) and it oscillates around 4.20. What can also be seen is the creation of a possible head and shoulders (HaS) price formation. The 4.22 level (the head) was not broken, and the right arm of the HaS has a lower high than the left one. Of course for it to realize, the market needs to test the support again. If 4.1750 is broken, the EUR/PLN could slide to 4.1450 (61.8%). For a stronger upward move, the 4.22 resistance needs to be broken.

Hungarian Forint (EUR/HUF) – Short backward movement

Hungary's inflation accelerated during the past month and this is what traders focused on this past week. Actually, the consumer price index moved up to 0.2% (yearly basis). The ECB's rate cut and monetary easing measures helped to offset risks that came from the Russia/Ukraine crisis. In this situation, the National Bank of Hungary has the chance to keep its guidance of stable policy rates for a longer period of time. Prices of services (+2.7%) and (still) tobacco and alcoholic beverage products (+6.4%) increased the most in August. Those elements had the largest effect on the higher CPI measure. The MPC meeting minutes showed that members voted 8-0 to keep rates on hold, which is also positive news for the Hungarian currency - it seems the MPC really stopped the cuts for now. The Forint has already depreciated to its new 2,5 year lows against the euro. The macro calendar is rather empty for next week which means traders in Hungary will focus on external data, mainly on the FOMC press Conference.

The EUR/HUF remains trading in a wide but stable range and probably the 317.17 resistance and the 312.31 support will restrict the next week Forint moves as well. We are expecting a huge break up of the 317 resistance mainly because of the flag pattern that appeared on the daily chart. Anyways, it seems the EUR/HUF is headed towards 324 (its historical high from January of 2012) so that Forint bulls can have a hard time next week. 

Romanian Leu (EUR/RON) – Not so worried from a 'merely technical' recession

The CPI of Romania now looks a lot more European (and almost Japanese), with a m/m decrease of 0,31% and a mere 0,89% y/y jump. The NBR is not going to be impressed just by this data, but if the price pattern continues to underwhelm, given the recent regional instability and internal discussion about another round of presidential impeachment in the run-up to the elections, together with a drop of 1.7% in construction activity and -0,1% industrial production m/m another rate cut may be a little more likely now. Russia has warned in the meantime that a NATO base in Romania is a severe threat and that it considers countermeasures. And the trade deficit in the first 7 months of the year is 0,78 bn. EUR, not a large number in itself, but a real difference to the surplus in the same period last year (although a very slim one of around 0,1 bn. EUR). Given the risk events of next week, including the Fed meeting and Scottish referendum, the RON is more likely to give away more ground, possibly above 4.4350.

Inside the technical perspective, the action moved towards the upper portion of the symmetrical triangle. We had seen the push towards higher ground as estimated last week, now things become a little more tricky: a break above 4.4350 means a real breakout on the upside, with an initial resistance at 4.4525 but an overall target all the way up to 4.5120, whereas a more reasonable half-size level would be 4.4740. Support is at 4.4200, 4.4000 and then 4.3820. The current technical conditions favor the upside of the pair.