From Russia with love

Polish Zloty (EUR/PLN) – At yearly highs

It was such an interesting week that I do not know where to start. It would be the Fed and its dovish statement as the main event if it was not for Russia. The tumbling stock market along with a massive depreciation of the Ruble had great effect not only on neighboring economies, but even on global ones. The turmoil in Russia has been going on for some time but till this week, the Polish currency was unaffected. The economy will not suffer, as roughly 4.5% of exports from Poland is sent to Russia. The fears about the Russian economy collapsing though caused the Polish Zloty to tumble in a way unseen for months. At first, the depreciation of the Russian currency was so huge, retail brokers stopped offering it to their clients. The intervention (at first small but then 7 billion USD) of the central bank helped to stop the decline and the Ruble rebounded. Still, as Vladimir Putin mentioned in his press conference, the weakness of the economy could last up to 2 years. No wonder emerging market currencies were hit hard. All this is happening in a week when we had a bunch of interesting macro data being published for the Polish economy. CPI inflation in November (yearly basis) was at -0.6% (worse than forecasts) while the Core CPI increased by 0.4%. Such mixed data still does not give us a clear picture of how are we doing with prices. Wages in November climbed by 2.7% (yearly basis) but it was a smaller increase than the previous time. PPI inflation in November confirmed deflation could last longer than till the end of the year – this time it declined by 1.6%. For dessert, industrial production in November increased by only 0.3%, showing the industrial sector is stagnating another month in a row. Summarizing, macro data should have been enough to send the PLN south but adding the Russian turmoil to it, we had a strong and quick depreciation of the Polish currency. We also have to keep in mind that the chance for another interest rate cut in the first months of 2015 has increased. The proof comes not only from the weak macro data but also from the last MPC meeting minutes that have been published this past week – the propositions to cut rates by either 25bp or 50bp were rejected by only one vote each.

What can we expect from the EUR/PLN in the upcoming weeks? We will see if this strong upward move was not an overreaction. As we see on the daily chart, the market advanced quickly and blasted through 4.24 resistance level. The EUR/PLN reached even 4.28, which was its highest level since September of 2013. Only from the technical analysis standpoint, the next target should be 4.30. If broken, the way towards 4.36 will be opened. I believe this is a low-probability scenario. I see a chance for a corrective movement, back towards 4.24 (which is the support level now). The stochastic oscillator confirms this view showing the market is overbought. Sure, there are none vital impulses supporting the appreciation of the Zloty, but this week’s spike has a chance to be corrected. 

Pic.1 EUR/PLN D1 source: xStation

Hungarian Forint (EUR/HUF) – Looking for correction based on EUR

The week for HUF traders started on Tuesday, when the MPC kept interest rates unchanged at 2.1%. The decision came a surprise as the CPI index fell to -0.7% (yearly basis) and the market also reacted to it with a weaker Forint. The answer for the European and the Russian situations was very powerful - the EUR/HUF climbed above the 316 level reaching its 13-week low. Next week (Tuesday) we will be focusing on the trade balance numbers. Expectations say that exports are sensitive to the Russian economic situation. The year-end is coming and the bad mood can be sensed on the European market. Lower oil prices permanently press the inflation and this situation keeps alive the easing expectations. The ÁKK agency (Debt Management) informed that the debt-to-GDP ratio could decrease, but it is not secured above the 315 levels. The Central Bank is quiet and seems calm - we cannot see any hidden interventions ahead. Real wages are increasing as well, but the employment rate still does not shine if it is corrected with the numbers of the public work programme. There is another risk factor: ÁKK cannot continue to promote the Hungarian government securities for at least 3 months. 

Looking at the daily chart we can that the 316-317 area is an important resistance zone. If the HUF could regain some power back within the next couple of days, the 313 level (or 311 mid-term) can be available. This powerful rally stimulates carry traders and correction hunters for shorts, but also it can provide good selling momentum, if one can sustain wider stop loss levels.

Pic.2 EUR/HUF H4 source: Metatrader

Romanian Lei (EUR/RON) – All things are not “normal”

This time of the year, with only a few nights until Christmas used to be a period of larger inflows that moved the balance of the EUR/RON market in favor of the Leu. But not that much this December, as the RON only managed to put a not so safe 0.7% distance between its recent highs and the current quote. The government managed to receive from the IMF a 1.83% deficit target (higher than initially desired abroad) while growth is seen at 2.5%. In our view the main trade partners in Europe need to feel the thrust of QE before they can deliver for Romania (through trade channels), and risks of further rate cuts together with regional turmoil would eventually put more upside pressure on the pair.

The technical perspective offers a test of the downtrend, unsuccessful only for now. We see a bit of consolidation above 4.4525 (while further support is at 4.4450) and below 4.50 for a few sessions. The breakout is likely to be on the upside, with an initial bullish signal on a close above 4.4940 (the estimated downtrend line in a few trading days). Next resistance is at 4.5221. For now the equilibrium is a 150 pips move around 4.4750.

Pic.3 EUR/RON D1 source: xStation