PLN, RON weekly snapshot - different types of range

Polish Zloty (EUR/PLN) – trading in the 4.31 - 4.34 range

Since last week we have seen the EUR/PLN breaking the 4.31 resistance but was unable to continue its upward move. The 4.34 level remained untouched. That 300 pips trading was a surprise to me (not the PLN depreciation though) as various macro news and statements regarding monetary policy came out. Average wages increased by 3.9% in September (yealry basis) which was lower than expectations. The negative news came out on Wednesdaywith the publication of the industrial production number (only a 3.2% increase in September) and retail sales (only 4.8% higher in September, yearly basis). On the other hand, suprise! The PPI inflation in September was 0.2% (yearly basis)! Is this a sign the the economy is saying goodbye to deflation? Not yet, but this is a good sign. Much more interesting was the interview given by Jerzy Osiatynski, member of the MPC. He stated that the lack of action by the MPC in the last couple of months has its root in two oposing tendencies that are happening on the market - from one side there is a big problem with investments by companies (both national and foreign) while at the same time wages are increasing and that can cause inflation to reach its target in one year time. I doubt that. Still, we are all waiting to see inflation above the 0% level.

Now, what does the daily EUR/PLN chart tells us? It does not want to speak too much. We see the market broke the 4.31 resistance and tried to reach 4.34, which is the 61.8% retracement level of the last downward move. It was unable to do so and it retreated below 4.33. The stochastic oscillator is not giving us any signal at this moment so we have to wait until the EUR/PLN breaks out of this range. If it breaks the 4.31 support, then it will target the 4.29 level. If it breaks the 4.34 resistance on the other hand, then only 4.36 can stop it from heading towards 4.39 in the next couple of weeks.

Chart 1 EUR/PLN D1 source: Metatrader

Romanian Leu (EUR/RON) – Storm deflected?

We had a vote on the law that would allow CHF debtors to convert their loans into RON at rates roughly half of the current ones, imposing large losses on the banks, with no limitations such as net disposable income of the borrower or any upper threshold of each loan size. It has been a ”yes” vote. Has the market spiked much higher? Not really. The mystery can only be solved by looking at the related news: the President would take into account banks’ opinion before deciding on whether to accept the current form or send it back to Parliament. The market seems to think that, if the President asks for a different form, there would be no time to pass the law before the December elections, thus reducing the probability of the piece of legislation being actually put to effect, or at least strengthening the odds of a toned-down version. This is not to say that further depreciation risks for the RON do not stem from the current situation, only that the market is being much cooler than previously estimated. Macro data has not been relevant this week, and while interbank lending rates were generally stable. We see the current oscillations around 4.50 as being vulnerable to upside bumps in the sessions ahead, while the nearing elections would also induce later in November a bit more volatility.

In the technical analysis perspective, there may appear a sort of ascending triangle, although the upper limit is far from being clearly defined. It seems like the market has its eyes on 4.5088, and even if a triangle is only a rough guide, a push higher than 4.51 may lead to a test of 4.5212 at first. Under current volatility assumptions, 4.5400 seems a bit far, however reachable with the help of some outside news. Support is at 4.4850 and 4.4762.

Chart 2 EUR/RON D1 source: xStation

Claudiu Cazacu – Chief Strategist XTB Romania
Adam Narczewski, CFA, PRM