Corrective movements

Polish Zloty (EUR/PLN) – Just a rebound or turnaround?

April was a good month for PLN buyers. The Polish Zloty was among the best performing currencies globally, gaining over 5.5% against the USD (the top performing currency was the Russian Ruble with an over 14% gain). This past week though, the Zloty gave up some of those gains, also against the Euro. I believe the market needs such a corrective movement but it is hard to say if this is the moment where the EUR/PLN will turnaround. This past week there was no crucial data from the economy. The only fact worth mentioning is that the ministry of Finance sold Swiss Franc denominated bonds (750 mln CHF) for the first time and became one of the few countries offering bonds with negative yield. This actually confirms that investors believe in Poland having strong fundamentals. Other than that, the PLN was influenced by external factors. This week though, those were rather mild. The FOMC was rather careful in wording its statement and I still do not exclude an interest rate hike in June. As for the Polish Zloty, the crucial (from the psychological perspective) 4.0000 level was breached but I do not see the EUR/PLN trading below that level for a longer period of time.

Looking at the daily chart, we see that on Monday the market attacked successfully the 4.00 level but was unable to continue the descent. The EUR/PLN rebounded and currently is fighting at the 4.04 resistance. Breaking it should trigger a move towards the 4.08 area. The stochastic oscillator suggests an opposite scenario – another try to break the 4.00 support. If that happens, the market will target 3.95.



Pic.1 EUR/PLN H4 Chart

Hungarian Forint (EUR/HUF) – Resistance at 4,20 not broken

Decreasing local interest rate, increasing global risk and worse than expected macro data from the U.S. It was not the best week for emerging markets...again. We also found out that Fitch does not expect any short-term changes in Hungary’s debt rating. Before a regular review scheduled for May 22nd, Fitch does not expect a change in Hungary's rating (BB+ with stable outlook) as there are no major factors that could influence the economy drastically in the next couple of months. At this moment, Hungary is Central Europe’s most indebted nation, with 76.9% public debt to GDP ratio by the end of 2014. Despite the bad news, Hungary’s unemployment rate was 7.8% in the first quarter of 2015, down 0.5% in annual terms what supported the local currency this week. The key event next week is the MPC meeting minutes which will show us how many members voted for cut on the previous decision. 

From the technical perspective, the 300 level is a really massive and (as it seems) unbreakable support for the Forint buyers. We expect the EUR/HUF will move in a 300 – 306 range in the short term but the lower interest rates could take the market north. The 200 DEMA is the last resistance for the EUR/HUF and which can stop the Forint from further depreciation.



Pic.2 EUR/HUF D1 source: Metatrader

Romanian Leu (EUR/RON) – A shallow, more volatile market

We have seen a bit of action this week, especially on Wednesday when the breach of 4.4000 led to an avalanche of orders. It has been a day of a more than 1% move which is dynamic for the usually sluggish EUR/RON. Within the re-discovery of the RON as an appetizing investment allure following some Bloomberg coverage a large role was that of the chunky bonds offering by Bucharest, the capital city. It was designed for institutional investors, and flows might have significantly favored the RON. However, as soon as the subscription ended, quotations were pushed back above 4.4000. Inside the macro environment, the unemployment rate was 0.1 points higher, but sentiment in the services, constructions, retail sectors posted optimism. Overall some forecasters see growth at or above 3%, therefore the RON may be relatively balanced, keeping in mind that the NBR is likely to continue to ease its policy by means of reducing the minimum reserve requirements. Greece seems to advance towards a manageable restructuring, and that scenario would be short-term favorable for the RON. We see only short impulses below 4.4000, with a confort zone below 4.4315.

We have indeed seen a push below 4.4000, and a fast yet-short lived follow-up. In the technical perspective, the market regained the 4.4000 - 4.4315 range after what seems to be a blip. However, desipte the flashy action, we see a downtrend taking shape, so it may not surprise us if on attempting to breach 4.4315 the market changes its mind and slides back to 4.4200 and then possibly 4.3900. Resistance is at 4.4450 and 4.4525.




Pic.3 EUR/RON D1 source: xStation