Low volatility means stability

Polish Zloty (EUR/PLN) – MPC keeps rates at 2.00%

After two weeks of intense movements and high volatility, the situation on the PLN market has stabilized. Globally, Greece is still the main topic being discussed but it had little effect on the Zloty. This time the local currency got support from local macro data. The industrial PMI climbed to 55.2 points in January, which was higher than expectations. Additionally, the Zloty got a boost from the National Central Bank and its financial system stability report. According to it, the financial stability of the banking system has not changed in the last 6 months. Also, the CHF/PLN declined well below the 3.95 level, giving a breather to hundreds of thousands of Swiss-denominated mortgage holders. The main event of the week though was the MPC’s interest rate decision. No surprise here: interest rates were left at 2.00%. The reasoning of the MPC was that the current market volatility is too high and that making a move now would make the situation even worse. At the same time, Marek Belka (MPC’s Governor) stated that the central bank monitors the economic situation closely, and if inflation does not pick up (currently we have deflation in Poland), the MPC will be ready to act. Ok, so what is next? Some market participants strongly believe that interest rates will fall in Poland. On Thursday, Morgan Stanley announced it opened a long position on the EUR/PLN with a target of 4.35. The investment bank expects aggressive interest rates cuts in the upcoming months. I doubt that. The Polish MPC and aggressive? Those two do not sound right when combined together. Sure, there is a chance for a cut in March but no more than 25 basis points.
Looking at the daily chart we see the EUR/PLN has been trading in a 4.16 – 4.18 range throughout the week. Despite trading close to the 4.15 support, it seems it can be a good time to rebound. The target in this case is 4.18. On the other hand, if the Zloty appreciation continues, the market will be testing the 4.15 support. Breaking it, would trigger a move towards 4.13.

Pic.1 EUR/PLN D1 source: xStation

Hungarian Forint (EUR/HUF) – Flawless falling

As volatility declined globally, traders in Hungary focused on local macro data. Hungarian industrial production increased in December by 7.1% (yearly basis) confirming a strong finish of the year. Dynamics may be influenced by some development projects in car production, mostly by Audi and Mercedes. However, it seems economic growth will slow down to 2.4% in 2015 and further to 1.9% in 2016. One year ago, the EU suggested the Hungarian government that the country’s deficit in 2014 could reach 2.6% of GDP. Now, Brussels sees the gap widening to 2.7% this year, against the official target of 2.4%. Basically, the market reacted only for the first info and welcomed the industrial production data by Forint strengthening moves. So what do we have for next week? We will get the trade balance and inflation publications, with the latter being crucial for the Hungarian currency. Analysts estimate that inflation will remain under 0, which could prolong the time until the first interest rate hike in Hungary.

Taking a look at the daily chart we can see that the 32.8% Fibo retracement level was broken this week and Forint bulls remained strong on the market. The next stop could be at the 303 level (100 SMA). The Forint is getting stronger but we have to keep in mind that Poland and Romania (countries in the region) are also considering an interest rate cut in the near future.

Pic.2 EUR/HUF W1 source: Metatrader

Romanian Leu (EUR/RON) – Finding value in EUR/RON

As the National Bank delivered the rate cut to 2.25% that was largely foreseen, the Leu found balance. It is now traded above 4.4 per Euro, and apparently these levels may hold for a while, as long as the market ponders which may be the most valuable proposition: lending funds for returns below zero to core Eurozone countries, or getting roughly 2 points more in Romania. With the cycle of rate cuts at its end, as suggested by the NBR Governor, would there be any room for RON to gain more? Apparently not so much, as in our view the market has already overshot, and there is clear room to ease more by cutting reserve requirements. The macro perspective is apparently improving, with better consumer sentiment leading to a 0.3% increase in retail in December s.a. vs. November and higher industrial orders in December m/y by 1.6% although m/m we saw a drop of 4.7%, all in nominal terms. The drop was largely due to durable goods, although this may be seasonal. On the bright side the auto market gained 3.7% in 2014 vs. 2013, and the trends are looking better in the medium term. With the Swiss Franc loan issue left to be solved individually, the market seems to be balanced around 4.4000, and the search for value of the Leu is largely dependent on the risk sentiment and QE perspectives in Europe. Main view is a slow upmotion towards 4.4200 next week.
Technical analysis picture is a tad more bullish, after a rejection from the stronger support around 4.3720 following initial surprising RON strength. On the weekly chart this looks like a false breakout, and together with a possible hammer formation we may see rising temptations. The core area for the week ahead may be within a 200pips band around 4.4100, as it is possible to get another attempt to break 4.3720 (next support being 4.3450). Resistance in the short run is 4.4200 and further above at 4.4450.

Pic.3 EUR/RON W1 source: xStation