Week of depreciation

Polish Zloty (EUR/PLN) – 4.18 is crucial

The ECB and its TLTRO program were the main stars of this past week. We all are closely following the effects of the auction as it can have great effects on emerging market currencies - a successful LTRO would certainly give a boost to the Euro. One would think the situation of the Russian Ruble (RUB) would affect neighboring countries and their currencies, but that is not happening. The RUB keeps depreciating and reaching historic lows against the USD. The Russian central bank is trying to fight the depreciation by increasing interest rates – this time to 10.5% (from the previous 9.5%). The Polish Zloty though is much more under the influence of the Eurozone. This past week no important macro data has been published from the local economy. The only interesting news we have heard were about Andrzej Bratkowski, one of the MPC members. It turns out, Bratkowski feels his views and statements are not presented in the minutes the MPC publishes after its monetary policy meeting. It could be the case as he is known for his extreme views and ideas. As an example, Bratkowski is persuading the MPC to cut instantly interest rates by 1% (100 basis points at once!) from the current 2%, as the economy is experiencing deflation. As he feels he is being censored, he decided he will be publishing his statements from the MPC meetings on his Twitter account! Of course, no one expects any info divulged by Bratkowski would move the PLN market, still we will all be following his posts. 

As we see on the daily chart, the EURP/LN rebounded from the 4.15 support and cruised through the 4.17 resistance. Now it is being traded close to a crucial technical support, 4.18 (38.2% retracement level of upward move that started in June and at the same time, 38.2% of the last downward move. Bottom line – 4.18 is a very important level). The stochastic oscillator suggests we can have a corrective move back to 4.15 next week. On the other hand, breaking he 4.18 resistance should trigger an upward move all the way up to 4.21.

Pic.1 EUR/PLN D1 source: xStation

Hungarian Forint (EUR/HUF) – Broken limits

TNo crucial macro data have been published at the beginning of the week on the Hungarian market. In this case, the EUR/HUF started the week by slowly moving upwards on Monday. Then, the hottest local data brought the first hit to the Forint. CPI inflation decreased to -0.7% (yearly basis) and core inflation 1.2% (yearly basis) in November. Such news killed any hope for HUF bulls. Because of the lower CPI more analysts believe that the central bank (MNB) may have to reconsider its view on the trajectory of the benchmark policy rate. The Central Bank of Hungary still keeps the main interest rate at 2.1% but next Tuesday the Monetary Council may use their force and cut the rate by 10 basis points. This is at least what the market expects.

From the technical perspective, we expect the Forint to close the year 2014 in weaker shape than it is right now. Just recently, the EUR/HUF broke the 100 and 200 EMAs breaking the 305 level at the same time. Currently, the EUR/HUF is trading on the local highs of 308(monthly high). If the rate remains above the downward trendline, the market will target 310 next week.

Pic.2 EUR/HUF H4 source: Metatrader

Romanian Lei (EUR/RON) – A bit more active downside of the Leu

Has the National Bank been happier these days? One may think so, by looking at the market move that validated the NBR preference for a weaker currency. Local data has not been that bad, with a 8% increase in industrial production in the first 9 months of the year. A CPI just 1.26% above its one-year-away level is however seen as practically warranting another rate cut. The uncertainty over the budget does not help either. However the move out of the RON may be seen in a regional context where risk is taken off the table before the Fed meeting next week. We may see some further pressure against the RON in the first part of the week, though that may get mitigated afterwards.

Inside the technical analysis view, the acceleration of the rising trend brought the market above some key levels. We may now aim for 4.50 in the short term, with the trendline providing resistance just a tad before that, around 4.4950. In case of a breakout, the next area to watch is around 4.5400. Our baseline scenario is however of a small retracement before another fully fledged and possibly successful attack of the 4.50 mark. Support is now at 4.4525, 4.4315 and 4.42.

Pic.3 EUR/RON D1 source: xStation