No clear direction

Polish Zloty (EUR/PLN) – MPC cuts rates to lowest level in history!

Better late than never. In the difficult economic surroundings (possible recession in the Eurozone, deflation for two months in a row) the Polish MPC finally decided to cut interest rates. And what a cut it was! Analysts expected the central bank will decrease interest rates by 25bp while the MPC surprised everybody but cutting rates by 50bp to its lower level in history – 2.0%. The decision (as underlined by MPC governor, Marek Belka) was not unanimous. This is great news for companies and for credit holders. Is this the last rate cut this year? We cannot be sure. So far we all expected two 25bp cuts in October and November. The MPC had it done on one meeting although I still believe the move was done too late. I also do not expect sudden improvements in macro indicators so another rate cut this year is still a possibility. The more than expected cut affected the PLN instantly, which climbed to levels just above 4.19. The rebounding EUR/USD and the vision of rebounding Polish economy after the cut stopped further depreciation of the Zloty. Again, we have to wait for another impulse that can swing the EUR/PLN in any direction.

When we look at the daily chart, we see the EUR/PLN remained in the 4.17 – 4.19 range. The surprising interest rate cut sent it towards the upper limit of this range, but the market was unable to fly higher. So the technical outlook remains the same as in the previous week. Breaking the resistance of 4.19 should send the EUR/PLN to its next target – 4.21. Breaking the support of 4.17 would trigger a move to 4.1550.




Hungarian Forint (EUR/HUF) – Inflation in negative territory

This past week the Forint kept gaining due to improved global sentiment. Only on Friday the HUF gave back some of its gains due to the inflation report. Hungary’s consumer prices dropped 0.5% (on a yearly basis) in September, more than what analysts projected. Low inflation and a stronger Forint could give more space to the National Bank of Hungary to ease monetary policy even more. The NBH will probably start considering lowering interest rates again. From the fundamental perspective we can see that the Forint market can be ready for a small correction. Next week there is no important macro data from the local economy so again external factors will be the main drivers for HUF traders.

Taking a look at the daily chart we can see the 305 levels stopped the Forint bulls today. The rebound could take the market back to 308 although with the worsening situation in the Eurozone, the upward move can take the market even higher. Forint bulls can get in trouble above 305.60 so carry traders should wait for a bigger rebound and get back around 307-308.

Romanian Leu (EUR/RON) – The balanced wait for the next pulse

Is the dullness of the market providing any message for the future, or is it a simple reflection of the current wait-and-see environment? The answer may lie within the next few weeks, as the risk-off global sentiment starts to take its toll even on the otherwise calm RON. Inflation has increased to a 1,54% yearly rate in September, but given the weak retail and construction data, the National Bank would likely choose to cut rates again by the end of the year. With the presidential elections approaching and the feeling that markets are moving into a different atmosphere, the Leu may be feeling a little bit of heat next week. 

From a technical analysis perspective, the move towards the tip of the triangle renders it close to useless. More of the same 150 pip range consolidation is in order. We still feel however that a push towards 4.42 means the present lateral paradigm stays untouched, whilw a push above signals a rise towards 4.4525, and this is slightly more likely than the opposite. While first line of defense is 4.4000 on the downside, the more relevant support is at 4.3820 and 4.3740.