PLN, HUF and RON: Draghi steals the show… again

Polish Zloty (EUR/PLN) – up and down

As expected, this past week was far more interesting than the previous one. In Poland, we are getting closer to the elections day (Sunday, October 25th) and traders are analyzing its outcome on the Zloty. Sure, there is political risk, especially if the Law and Justice party wins (which will eventually happen). Monday should be interesting on the local market. The Zloty got no support from the macro data publications. Industrial production in September increased by 4.1% (yearly basis, lower than expectations) while the PPI reading stood at -2.9% (matching forecasts). A pleasant surprise came on Friday when the unemployment rate was published. August’s reading was verified to 9,9% while in September it was 9,7%. This were the first one-digit unemployment rate numbers since May of 2008. Still, the major moves on the Zloty market were of course attributed to Mario Draghi and the ECB press conference. Super Mario clearly stated that he will not allow the Euro to gain in value in the current, low inflation environment and low economic growth. The ECB mentioned it will not only analyze the current QE program, but it will consider cutting the deposit rate. The reaction of the market to this words was instant as we all saw on the charts. The Zloty, which had depreciating since the beginning of the week, regain ground really quickly.

The situation on the daily chart is really interesting but confusing at the same time. The EUR/PLN broke the 4.26 resistance reaching a weekly high of 4.29. After the ECB press conference though, the market tumbled and is being traded at around 4.25. Since the market is back below the resistance, we should see the EUR/PLN heading towards lower levels with 4.23 being the first target. If this support is broken, the market will be attacking 4.20. For an upward move, we would need to see the EUR/PLN ending the week above 4.26.

Pic.1 EUR/PLN D1 source: xStation

Hungarian Forint (EUR/HUF) – targeting the 307 level

The Hungarian Forint experienced similar moves as other emerging market currencies this past week. Although external events affected it the most, local news were also interesting. The Hungarian central bank (MNB) has kept its main interest rate unchanged at a record low of 1.35%. The decision was no surprise and left the markets unfazed, as it was broadly expected. The MPC wishes to sustain the current base rate level for a prolonged period. According to the statement by the vice governor, the interest rate may be kept at this level until the third quarter of 2017. Again, the government amended the 2015 budget as it will raise close to 25 billion Forints for the so called Modern Cities programme. That is another move to increase investments in the real estate and road building sectors. What is more worrisome, Hungary might be facing penalties from the EU for not being in compliance with EU rules. Hungary is affected in three areas (Energy, Environment and Mobility and Transport) and it will have two months to incorporate the changes. Still, traders seem to be focusing more on external events. The ECB’s press conference was the main driver of the HUF moves by the end of the week.

As we see on the daily chart, the EUR/HUF climbed to its weekly high of 312 but was unable to continue the upward move. We can see that downward regression channel was broken down yesterday, which pulled up the chart a little to the 100 DEMA (311). After the ECB, the market declined below the 310 level and it is heading towards the 308.50 support. Breaking it would trigger a move towards 307, which could be last defender for EUR bulls. If it gets broken, the market could be trying to reach the magical 300 barrier. This support (307-308) could be a hard exercise for the Forint bulls and the chart will remain between 307 and 311.


Pic.2 EUR/HUF D1 source: Metatrader

Romanian Leu (EUR/RON) – Bleeding supporters

The local currency has seen a bit of outflows this week, and the temptation to sell the RON may go on. Regional effects have had a say, but it is nonetheless relevant that even the wave of easing promised by Draghi and the surprise move by the PBOC did not do much to reverse the slide of the Leu. EUR/RON seems to be eager to push higher, anove 4.43 next week. There has not been much data on the macro front, but the risk of bank losses due to a lawsuit won by borrowers claiming unjustified costs imposed on them by the bank and the IMF suggestions that monetary policy should not be eased further wipes the ranks of previous trading supporters of the RON. There is also a seasonal/traditional weaker time for the currency, so that we see some upside risk, although limited in terms of price distance to be covered, possibly staying below 4.45.

In the technical approach we witness the first attempts (with a decent chance of succeeding) to move above 4.4315. The chart parameters seem alright, and a close above this level could prove a good indication of switching the playground to the 4.43 – 4.4500 area. Support is now 4.4220, 4.4150 and then, round and strong, 4.4000.



Pic.3 EUR/RON D1 source: xStation