PLN RON report – joined in rangebound action

Polish Zloty (EUR/PLN) - trading in the 4.35 - 4.38 range

It has been a week rich in macro data publications from the major economies. As expected, the major currency pairs showed some increased volatility. The Zloty? Very calm. We were expecting major movements after the Fitch and Moody’s rating agencies announced no changes to Polish debt rating the previous friday (after the session has ended), but not much has really happened. Sure, the Zloty began appreciating, but the move was not large. Also, the published macro data from the local economy has made the currency wilder. The CPI reading for December showed 0.1% (monthly basis) and it is a sign the economy is slowly waking up.  This was confirmed by a higher than expected PPI reading (3% in December, yearly basis) and retail sales, which have increased by 6.4% in December (yearly basis..although here we have to be careful as December is “shopping season”). Industrial production though, increased by only 2.3%. Mixed data came from the labor report. The number of jobs increased by 3.1% (yearly basis) which was in line with expectations. What is worrisome though, is the fact that wages increased only by 2.7% in December (4% in November). All this despite the fact that we have welcomed inflation back into the economy. That questions the growth in consumption (which along with decreased investments could be a drag on GDP). Nevertheless, the EUR/PLN was a relatively stable currency pair this past week.

As we see in the daily chart, the EUR/PLN  was unable to break the 4.38 resistance and it headed towards the 4.35 support (61.8% retracement level of the 6-month upward move). The stochastic oscillator shows the market is oversold and we should expect an upward move. So the strategy for the next couple of weeks seems simple: if the market breaks the 4.38 resistance, we should expect a move towards 4.41; on the other hand, breaking the 4.35 support should push the EUR/PLN down to the 4.32 - 4.33 area.

Romanian Leu (EUR/RON) – worries contained

We had a rather quiet week, if we were to just look at the charts. Yet, people have taken to the streets to protest a proposed move to change the judicial code only a few weeks after the election, and the President took the unusual step of joining the meeting of the Government on Wednesday to ascertain no changes are made without a longer, more detailed public discussion. No decision was taken, ultimately, which appeased overall sentiment. On the economic side, without much in the way of macro data, the markets have chosen to focus on the growth side of the story, rather than the deficit one, encouraged by the overall positive risk sentiment, while this years’ public debt service, seen at 13.2 bn RON lower than in 2016 (about 2.9 bn EUR) helps keep strains on the T-note market in check. On the macro front we have quite a peaceful week ahead, while Feb starts with a rich set of data. We see the market without the hurry for establishing a definite trend, although risks seem to be slightly to the upside, given the local and international sentiment risk/reward profiles.

The technical picture is quite obviously lateral, and it says a bit about the strength (or lack thereof) of bears. We had the normal retest of the trendline, but the market settled in a range, and although 4.5000 is the closest resistance to watch, it may pay to watch more closely the 4.4850 support, which would, if broken, possibly lead to 4.4762. Above 4.5000, resistances to watch are 4.5088 and 4.5200.

Pic.2 EUR/RON D1 source: xStation

Adam Narczewski, CFA, PRM

Claudiu Cazacu – Chief Strategist XTB Romania