PLN, HUF and RON: Draghi gives the impulse

Polish Zloty (EUR/PLN) – Higher rates in 2017?

Markets remain volatile which increases risk but at the same time it gives us, traders, chances for larger gains. The main reason for such situation is still China and the uncertainty about future global economic growth. Emerging market currencies got hit but worse sentiment, but regained some ground thanks to Mario Draghi. The ECB kept interest rates unchanged but Mario Draghi mentioned on the press conference that the bank is ready to act if inflation remains low in the Eurozone. What that means is that the QE program the ECB is running might get extended till 2017. That in turn means more money flowing into the financial system and good news for emerging market equities and currencies. So Mario definitely gave a boost to the Zloty. On the other hand, local factors also had impact on the PLN. The Production PMI declined to 51.1 points in August from July’s reading of 54.5. Much more interesting was the MPC monetary policy meeting. The central bank kept interest rates unchanged but Marek Belka (MPC’s Governor) referred to the act that if passed will help CHF mortgage holders. The central bank agrees that the stability of the banking system could be endangered which in turn can weaken the Zloty dramatically. Also, as inflation remains low it seems the MPC could keep interest rates low even till the first quarter of 2017 (instead of the second half of 2016). In summary, it was volatile week for the Polish currency.

As we see on the daily chart, the EUR/PLN climbed to levels above 4.25 on worsening global sentiment. It was unable to advance further and after ECB’s conference it declined to 4.20, which is the 38.2% retracement level of the last upward impulse. If this support is broken, the market should be attacking 4.18 and ultimately 4.16 (61.8% retracement level). In order to advance higher, the resistance of 4.26 (August highs) needs to be broken.

Pic.1 EUR/PLN D1 source: xStation

Hungarian Forint (EUR/HUF) – Q2 growth slows down to 2.7%

The confirmed country’s economic output grew by 2.7% in the second quarter of 2015 (yearly basis) and it was the main news of the week. The smaller-than-expected growth was caused by a major contraction in agriculture, whereas the performance of manufacturing and services improved. Overall, it seems the reading was in line with what the preliminary report showed - Hungary’s economic growth did slow down in Q2, causing disappointment to many analysts. Probably, the worsening macro data will soon force the central bank (MNB) to revise its own 3.3% 2015 growth estimate, possibly as soon as this month. Luckily, the migrant crisis had no negative impact for the Forint yet, even though the EU migrant situation is very heated now in Hungary. This question keeps everybody busy and Hungary makes global headlines over the handling of migrant crisis. Anyways, the EUR/HUF stayed calm this past week.

From the technical perspective, the EUR/HUF is still moving between the 307-315 channel. Actually, the 61.8% Fibo retracement level could break after the next Euro bulls’ attack against the local currency. In this case, the price will be able to slide back to 308-310 in the near future. Still, because of the weaker Euro, the Forint could stay below the 315 level against the Euro next week.

Pic.2 EUR/HUF D1 source: Metatrader

Romanian Leu (EUR/RON) – Are there clouds on the horizon?

As the memory of the weak growth fades away, and new data point to a strengthening consumer (retail up by 1.1% m/m and 8.5% m/y in July) energy starts to seem better for the RON, yet that was only made possible by the relaxed sentiment in the markets relative to previous week. With a pause in Chinese slowdown (possible with a national holiday there) the Leu gathered some more strength. The NBR seems satisfied with the current range, and the below 0 PPI does not seem to warrant more rate cuts, as it is transitory, influenced by energy prices. A gradual manner of easing the fiscal burden has also been warmly welcomed by the markets. However the Leu remains correlated with overall market sentiment, and this may bring in risks ahead, with any push above 4.45 for EUR/RON seen as a signal of an unwelcome change and possible follow-up.

Is this slide only a preparation for the next jump? The technical view points to this being reasonable. In a wider range, the current channel may continue, until a push above 4.4315 energizes traders enough to aim for 4.4450, and possibly above the recent 4.4550 highs. While this is the main option in our interpretation, it may take some time, and the market may, given enough time, get even below 4.4090. A relevant support is at 4.4000, one difficult to break in the current risk-averse environment, so there would have to be significant pieces of news to morph it into a resistance level.