PLN, HUF and RON: rockin' Mario

Polish Zloty (EUR/PLN) – Zloty in trouble?

What a week we just had. As expected, the first days of December certainly were not holiday time. 

The party began on Thursday though, with the ECB lowering the deposit rate in the Eurozone and extending in time its QE program. Speculators trading on volatility can always count on Super Mario! Lower depo rate and longer QE means weaker Euro? Yeah, right. The EUR/USD stopped its downward move and shot up reaching levels above 1.09, not seen since one month. On the local market we also have interesting things going on. The stock market is falling down, which makes it a European sensation. Most indices are up, including the Hungarian BUX (which is over 40% up for the year!) while the WIG20 keeps reaching lower levels. Traders are more and more worried about the ideas the Prawo i Sprawiedliwość (Law and Justice) ruling party has for financial markets. It is not only the bank tax now. The budget deficit is expected to widen by over 4 billion PLN (around 1 billion EUR). The deficit relation to GDP might be over 3%, again. Poland has fought hard to lower it below this magical level. If it goes over again, the EU might be asking tough questions (and possibly block the payments of EU funds…). In the meantime, Polish economy grew by 3.7% in the third quarter of this year (yearly basis, better than forecast) while the Industrial PMI stood at 52.10 in November (slightly lower than expectations). The MPC though, kept interest rates unchanged at 1.5%, which was widely expected. Marek Belka, (still) the MPC Governor, says there is no need for lower rates although some politicians are mentioning such a scenario. Taking all the above factors into account, there was only one direction in which the EUR/PLN could have gone this past week.The beginning of the week was calm and the EUR/PLN traded in the 4.26 – 4.27 area. It all has changed on Thursday, when it shoot up in a strong fashion. The market easily broke the resistance at 4.2950 and continued accelerating reaching 4.3350. Usually the PLN gains in value when the end of the year approaches. Will this happen this year? Hard to say. A corrective movement now to levels around 4.30 is possible (the stochastic oscillator is telling us the market is overbought) but a more plausible scenario is that the EUR/PLN will be heading towards its yearly highs of 4.36. 



Pic.1 EUR/PLN D1 source: xStation

Hungarian Forint (EUR/HUF) – Nothing has changed

Economic growth in Hungary decelerates, but on a quarter-on-quarter basis, the GDP grew by 0.6%.The second estimate figures are both 0.1% higher than the preliminary data, but the overall picture remains the same. According to the report, we see growth in wholesale and retail trade and communication. On the other hand, construction and agriculture fared way worse than in the base period. Not just the GDP publication surprised us this week. Namely Hungary’s manufacturing purchasing manager index (PMI) has delivered the third consecutive strong reading in November and jumped from 55.3 points to 56.2 points. Based on the good results, Hungary’s Forint rallied on Monday versus the euro but meanwhile, the Euro started to appreciate against the US dollar. The Forint lost its power during the second half of the week.

From the technical perspective, the EUR/HUF stays in its regular triangle what determines the currency pair's movements since July. Euro bulls pulled back the quotes above the 312 levels (the 50% retracement level) again. What is more, the market is moving apart from the 100 and 200 daily moving averages. Looking at the Forint from a distance, we see no major shifts in the exchange rate while the local currency would need some impetus to break out of its current range that narrowed to 310-312.



Pic.2 EUR/HUF D1 source: Metatrader

Romanian Leu (EUR/RON) – Favorable GDP data does not deter RON bears

The GDP reading of +3.6% annualized in Q3 on Friday was not enough to deter all the pessimism regarding the RON, even though a jump in construction activity and more resilience on the consumer side should have been taken into account. The market has been focusing instead on the proposed budgetary proposal oriented towards higher public sector wages to the grievance of investments, which was built on a rather optimistic assumption of 4.1% growth in 2016. There has also been quite a stir around a law suggesting any debtor could be relieved of his/her debts by simply agreeing to transfer the ownership of his real estate collateral to the bank. The banks say this would hamper credit and ultimately make it more costly. Overall risk off seems to be the prevalent approach (given the recent underwhelming ECB action) and the RON may slide further, bringing EUR/RON closer 4.49, possibly even more.

Technical analysis suggests a breakaway aiming higher once the previous uptrend channel was left behind. The estimated projection of the channel width is close to the recent cluster of local highs at around 4.4912, while 4.5000 is a more symbolic (but not necessarily more valuable) resistance. Support is at 4.4550 and 4.4450, but a return to this level would mean a defeat in the short run for the bulls, and could bring the market back to a calmer, lateral mindset. We view however as more likely a push higher in the first phase of development.



Pic.3 EUR/RON D1 source: xStation