Setting up for larger moves?

Polish Zloty (EUR/PLN) – 4.17 still unbroken

I got to tell you – I was expecting much more from Mario Draghi. He was the only one I could count on to move markets. This time the ECB press conference was relatively peaceful. The NFP report though gave the required boost. Of course, both events had their effects on emerging currencies markets. Still, local factors also provided impulses. In Poland, the macro calendar was rather empty this past week. The Manufacturing PMI was published – it increased to 49.50 points. Besides that, Reuters made a poll and analysts expect two interest rate cuts this year and at least one in 2015. It would mean that the main interest rate would fall to 2% by the end of this year. I think this scenario is possible despite the fact the Polish MPC is very conservative when steering monetary policy a reluctant to changes rates. Next week the MPC is meeting and maybe the first cut will already happen.

From the technical side, it seems the EUR/PLN could be setting up for a larger move. The market was unable to break the 4.17 support and it starts rebounding. If the 4.1850 level is broken, the next target would be 4.20. Possibly, the EUR/PLN could be heading toward the local highs of 4.23. The support of 4.17 has remained strong for a long time so if finally broken, it should take the market down all the way to 4.14.




Hungarian Forint (EUR/HUF) – chance for the Forint?

Everything started with the ECB and the ABS programme. The central bank, as previously said, would begin buying covered bonds in about two weeks. The falling Euro brings much more comfort to the emerging market currencies. The Hungarian Forint is on a good path to recover. Some help came from the Economy Minister, Mihaly Varga, who pushed the quotes under the 310 levels when he said the forint exchange rate at the end of this year should be "favorable". Hungary needs a lower debt-to-GDP ratio at the end of 2014. The National Bank of Hungary has recently reported an 85% debt-to-GDP ratio for the second quarter, while the debt ratio stood at 79.4%. On the other side, the NBH is still thinking about lowering interest rates in the second quarter of 2015. Maybe we will learn more about this topic next week as the NBH meeting minutes and CPI data are coming up.

Currently, the EUR/HUF is trading at the 200DEMA. We just got fresh NFP data which sent the EUR/USD further south (affecting the HUF). If Forint bulls could swim below the moving average, the EUR/HUF could touch the 3 months low at the 61.8% fibo retracement, which is at 307.50

Romanian Leu (EUR/RON) – Truly in sync with Europe?

The NBR Governor, Mugur Isarescu, cited risks of a misalignment with Europe when he detailed the rate cut to 3% and the decrease in the minimum reserve requirements for banks’ national currency deposits. While the market had been largely positioned for that outcome, there is an interesting takeway: the Governor is careful to keep the carry-trade appetite to a minimum, as the economy cannot afford too strong a currency.Other data showed a decrease in building permits by 5% in August vs. July and a 0.2% monthly fall of the PPI, supporting the NB move and also suggesting that another rate cut by year end is in the cards. For now the market is balanced, but risks seem to point to a higher EUR in the week(s) ahead.

We are moving (too) close to the triangle’s end in analysis with a technical flavor, and this raises some issues. Maybe we are in not for a violent breakout, but for a larger, longer consolidation phase. Any move above 4.4200 now fulfills two aims (higher than both a resistance and the triangle’s upper bound), and renders the breakout strong enough to push towards 4.4310 and then possibly 4.4525. Is this more likely than a down move? Just barely. Farther away lies the last line of defense of 4.5000. On the downside support is to be found at 4.4000, 4.3820, 4.3740 and then 4.3600.