At some crucial supports

Polish Zloty (EUR/PLN) – The 4.20 support still not broken

January was a month in which currencies markets were either heaven or hell for traders. Volatility was high and trading volumes increased. This past week was no different. In Poland, the main topic remains “how to help the Swiss Franc mortgage holders?” It seems an agreement has been reached and bank will be more flexible when dealing with troubled clients. The government is pressuring financial institutions to ease those who took mortgages in Swiss Francs years ago (when the CHF/PLN stood at 2.0 – 2.5) and after “Black Thursday” (January 15th) are in major trouble (CHF/PLN shoot up over the 4.30 level). I just wonder if the government will be so eager to help Polish citizens who took mortgages in Polish Zlotys and the WIBOR (Warsaw Interbank Offered Rate – the rate on which mortgage rates are based on) shoots up. Will it help millions of Poles? We will see if that happens. At this moment though, there is some relief as the CHF/PLN rate dropped to 4,03 from 4,29 throughout the week. Turning our attention to the published macro data: not much going on here as the unemployment rate slightly declined to 11.5% in December and Retail Sales increased only by 1,8% in the same month (yearly basis, lower than expectations). Still, the yearly outlook for the economy looks good so the EUR/PLN should remain rather stable.

As we see on the daily chart, the market rebounded after testing the 4.20 support last week and kept steadily climbing till reaching 4.25. The market turned around and by the end of the week it was testing the support again. If the EUR/PLN breaks 4.20, then we should see it at 4.18 and possibly even at 4.15. In order for an upward move, the 4.25 resistance needs to be broken. In this case, the next targets for the market would be 4.27 and 4.30.

Pic.1 EUR/PLN D1 source: xStation

Hungarian Forint (EUR/HUF) – on the edge

As we expected, the National Bank of Hungary (NBH) has left the base rate on its record lows (2.10%). According to many reports, it seems the current level of the benchmark rate is consistent with the medium-term achievement of price stability. Furthermore, current rates are appropriate in order to meet the CPI goal as well – the Hungarian central bank officials say. On the other hand, we believe that high levels of the USD/HUF and the CHF/HUF saved the interest rate from another reduction. Good news came from the Government Debt Management Agency (ÁKK), which allotted the entire volume on its offer. Yields were between 1.55% and 1.70% averaging 1.63%, which is 5 basis points over Thursday’s benchmark fixing. Hard times are coming for Prime Minister Viktor Orban, who is meeting with Angela Merkel next Monday. Also, Vladimir Putin will be visiting Budapest soon. It seems, Orbán wants to secure a long-term gas deal with Putin. This is a risk factor that should be included when analyzing the Forint.

From the technical perspective, the Forint is getting stronger and stronger against the Euro. The situation is very similar to that of January 2012, when the currency pair also fell back from its all time highs. The local support at 310 seems strong but Forint bulls attacked it a couple of times in the last couple of days. If the EUR/HUF breaks the 310 support, the next stop could be 303.75 at the 100 DSMA, which is exactly at the 38.2% Fibonacci retracement level.

Pic.2 EUR/HUF H4 source: Metatrader

Romanian Lei (EUR/RON) – Thank you, Mr. Draghi

If one wants to put it simply, the Romanian Leu has seen the brighter side of the European QE this week, allowing it to gain 0.9% these five sessions and 1.6% fromt the top on Jan 21 against the Euro. The yield of more than 2% for 5 years and 2.3% for 10 years now seems very attractive when compared to the alternative, in France one can barely get his money back on a 5 year treasury note while he would get below zero interest on a 3 year note. There have been several data points, including a 0.1 p. falling unemployment rate, to 6.4% and 0.3% lower building permits in all 2014. Also banks have been faced with big pressure from the media and public to rewrite terms of CHF loans after the SNB “awesomeness” but as of now it seems like there will be only individual arrangements, so the system as a whole will not be forced to swallow most of the losses. In the time since the last report we have seen USD/RON reaching new record highs above 4, and then returning towards 3.90, where it seems that it may stay for a limited while before possibly turning lower. As for EURRON, the love affair with QE may turn into something more serious, but only after a bit of a retracement, with 4.45 being the balance level.

We have designed a new downtrend these days within the technical analysis view, with a good coherence (in terms of what is good for the EUR/RON market). The aged trendline provides support at 4.4250 and there is another level at 4.4315 strengthening the bullish case from here. Any push to the upside is likely to be met with resistance at 4.4450 and a very strong one at 4.4750. If we break lower, which only the alternate scenario, finding support is easy at 4.4200 and easier at 4.0000.