Polish Zloty (EUR/PLN) – MPC cuts rates, what is next?

It was the week of central banks. Interest rates were in the spotlight not only in the Eurozone, England or Australia but also in Poland and Romania. Despite the increased volatility on global markets, the polish zloty remained rather stable. We were all waiting for Wednesday and the MPC’s decision. Interest rates were cut by 25bp to 3.75% as expected but the press conference that followed the decision was disappointing. No clear signals were provided by MPC members. Marek Belka, the central bank president, stated that in March the MPc will not increase interest rates, but may either cut them, or keep unchanged, or any of the above. I know, it is confusing and so was everybody. Now we honestly do not know what the MPC will be inclined to do. Although all the logic and incoming macro data tells us that in March one more cut will be made. Another important issue: the EU summit has started on which the EU budget will be set up for the years 2014 - 2020. Polish officials are fighting for 300 bln PLn (72.5 bln EUR) but till now that amount was not confirmed yet. If the budget will be smaller, the Zloty can be under pressure.
On the chart we see the EUR/PLN retreated to the 4.14 support but was unable to break through it. Bulls took over and 4.20 was tested one more time, unsuccessfully. If the market breaks 4.15, then it will be targeting the weekly lows of 4.14. The closest resistance remains in the 4.20 – 4.21 area and if broken the EUR/PLN will be on its way to 4.23. The stochastic oscillator is not providing us with a clear signal but it seems the market has upward potential. In order for the EUR/PLN to attack lower levels, the market not only needs to break 4.14 but also the 200 MA.

Pic.1 EUR/PLN D1 Chart

Hungarian Forint (EUR/HUF) – gaining back strenght

Hungarian forint opened the week well below the 34-week high versus the euro even though Monday brought a big sell off in risky assets as the Rajoy cabinet was involved in a corruption scandal and in Italy Berlusconi scared off investors with populist promises. Main focus in Hungary was on the possible auction of global bonds in the amount of 2,5 billion dollars as government officials finished investor meetings organized in the US and UK capitals. Such announcement didn’t arrive until late Friday hence this issue will be prolonged to next week. On the macro front Hungary’s 10-year yields approached the highest level in two months on Friday as the trade surplus shrank to the smallest since 2011. Export was the only component that contributed positively to economic output, hence it seems that the Q4 figure that will be published next Thursday will show signs of even deeper recession.

Technically, on Friday the EUR/HUF pair reached an important soft support level at 290.90 level, that is also the neckline of a daily head and shoulders formation. With the break of this level forint can strengthen further towards multiple-week lows. Take profit levels for forint bulls are seen around the important daily moving average levels at 289 and 286.50.

Pic.2 EUR/HUF D1 Chart

Romanian Leu (EUR/RON) – Shying away from any determined trend

It was mainly the global risk aversion that pushed the RON downwards in the week. On Thursday, the 4.40 mark had been surpassed on a wave of unfavourable sentiment after the sovereign bonds issue had been greeted glacially and the CDS went up above 200 points. The official view of the Governor that the rate was around its equilibrium level was no reason for the market to fight against the trend. The National Bank kept the rate at 5.25% as widely expected, and made no change to the minimum reserve ratios. It warned of potentially higher volatility, although tools would be used to prevent unsustainable spikes. Industrial production stagnated in December n a monthly basis, but fell by 0,6% from December 2011. There is also a sense of worry over the long-term resistance of the political coalition in force, which appears to re-surface. The week ahead may be as volatile, and the Leu will surely need some global sentiment help if it is to stand a chance against the Euro.

On the technical side, the 4.40 resistance was broken on an intra-day basis, and a spike above the 41.4% retracement is not yet a clear sign of continuation. The recent trend is clearly upwards, but if any gains are to be made, a close above 4.4073 is of the essence. As suggested previously, the upside path may still be the first choice, but a consolidation is possible as well. The 4.35 – 4.40 area appears fit for a range. On the upside, further resistance is at 4.4410 and around 4.48 (which stands as the 70.7% retracement). First support is at 4.35 and then the quite old 4.30.

Pic.3 EUR/RON D1 Chart