Polish Zloty (EUR/PLN) – MPC cuts rates to lowest level in history
For weeks like the ending one, traders wait for a long time. We experienced a lot of action from central banks (ECB and BoE) and the NFP report. The beginning of the week was rather calm as all of us were waiting for Thursday and Friday, and we are not disappointed. Statements made by Mario Draghi, Mark Carney and the better than expected NFP reading had impact on emerging and they also set up a path for the upcoming weeks. The Zloty was under the influence of the factors mentioned above although some crucial macro data was published from the Polish economy. The PMI index declined to 48.2 points while the unemployment rate dropped to 13.2%. The main event of the week was the MPC’s monetary policy meeting, on which interest rates were cut by 25bp to its historic low of 2.5%. The reaction of the market was mild as it was already discounted. Marek Belka, MPC’s President, signaled this ends the cycle of interest rates cut but I would not rule out one more if the situation worsens or inflation drops close to 0%.
For the last two weeks the EUR/PLN traded in a narrow 4.30 – 4.34 range and it broke the support on Thursday after the ECB and BoE statements. The downward movement was stopped at 4.26, not only 38.2% retracement level of the whole upward move, but also where the upward trendline runs. The rebound took the market back to 4.30 and currently is fighting at this resistance. Breaking the support would probably trigger a downward movement towards 4.23 (50% retracement level). It seems though there is a higher chance for an upward move. The stochastic oscillator is showing the market is oversold but also the gaining USD should make it difficult for the PLN to appreciate in the upcoming weeks.
Hungarian Forint (EUR/HUF) – expecting EUR/HUF to fly higher
Amid political crisis in Portugal and renewed concerns Greece can meet obligations concerning budget diet Hungarian forint continued to gain strenght and touched a two-week low against the euro. Levels below 293 were hit on Thursday after Mario Draghi came out with new communicational style and pledged to keep monetary policy accommodative for an “extensive period”. Investors were able to hear mainly good news from the economic publications, especially about the trade balance that continues to increase and in June surpassed 717 million euros. The positive trend in the trade surplus supports the Forint on medium to long term scale but for the day-to-day followers of Hungarian instruments positive comments from the City caused pleasant surprise. Standard Bank followed JP Morgan and came out with an optimistically tuned recommendation about Hungarian sovereign debt and government bonds suggesting to overweight them in portfolios. Despite some undeniable achievements Hungarian credit ratings are is still kept in the junk category thus holding back part of large institutional investors to buy.
Technical trading on the EUR/HUF was relatively simple as closing short positions around the 200 DMA level was more than reasonable. After taking profit on short positions a swing to higher levels is more probable with a resistance set by the descending trendline around the 298 price levels. Risk reward driven trading also suggest favoring long positions over short ones on the daily chart.
Romanian Leu (EUR/RON) – Rate cut to 5% has been priced in
The National Bank cut rates to 5%, following an almost two-year pause, in the hope the credit flows will start oiling the pipes of the economy again. It has enough room to maneuver because inflation, now at around 5.32%, is projected to come towards the 3.5% upper limit of the targeted interval in the second half of the year. The move has apparently been priced in, with EUR/RON stable after the cut. The unemployment rate was at 7.5%, in May a 0.3 pp increase over April. But GDP managed to post a 0.6% q/q increase in Q1 2013 and estimates for 2013 growth have turned more optimistic, with some seeing a figure of more than 2%. The summer will be more interesting than usual, as the governing alliance may suffer internal divisions, and the global risk appetite is likeley to transfer its swings in a more pronounced manner than usual toward EURRON. For the time being, a consolidation would possibly be the most likely outcome.
Technical analysis perspective is now a little more quiet. There is a lateral development that could lead to a full-scale rectangle, with its respective targets. Therefore levels to watch are 4.4198 on the downside, with a break possibly leading to a test of the 4.3965 support, followed by the full target of the anticipated consolidation, around 4.3754. On the upside, any close above 4.4655 may provide fuel for a test of 4.5111, while the strong resistance is at 4.5449, mid-June local high.
