RON weekly snapshot – (EUR/RON) – Massive GDP growth does not tell all the story

Are we in a period of calm that is simply a reflection of fundamentals, or the market is regrouping for another test of the NBR’s will to keep the market stable? This may be the question not just for the week, but for the summer ahead. While the GDP growth has ignited both awe and distrust (a jump of 5.7% annualized in Q1 above market estimations), the worries about the sustainability of the budgetary plans linger. So much so that the IMF warned about going above the 3% deficit threshold, estimating a level of 3.7% this year and 3.9% in 2018, which given the position in the cycle is hardly a non-procyclical behaviour. The National Bank plays both offense and defense, encouraging banks to extend credit, in a “prudent” way (they won’t do much better just by raising commissions and FX fees) but also mentioning house prices as a risk to financial stability. Another piece of good news, the NPL ratio slid 0.22 points to 9.36%. What lies ahead is rather uncertain in the short run, but, barring a change for the better of the fiscal margin of safety, RON risks may weigh on the market views.

The technical picture provides a rising channel, over the last days, harmonizing with the trend that has also been upwards over the last months and years. While there was a correction below 4.55, that level has not been breached decisively. There is room within the channel for both a retest of 4.56 and 4.5750 as well as support at 4.5405 and even levels slightly below that (around 4.53, given the lower trendline). The recent micro-hammer pattern may point to short-term upward pressure, but actually in the near term the market can easily change its mind.

Chart  EUR/RON D1 source: xStation