Polish Zloty (EUR/PLN) – PLN at crucial support level

What an interesting week it was. Not only the Italian elections results but also the reaction of markets to Ben Bernanke’s testimony in front of Congress provided many impulses to traders. Obviously, emerging market currencies has not remained unaffected. Although we have to note that also a couple of internal factors also contributed to the larger currency movements this past week. In Poland unemployment rate increased to 14.2% in January, which still confirms the need for further interest rate cuts. Retail sales in January rebounded by 3.1% (from the 2.5% drop in December) while the PMI index remained almost unchanged at 48.9 points. The most positive macro data came on Friday when we learned that GDP in the 4th quarter of 2012 grew by 1.1% against an expected 0.9%. Also on Friday, a big debate started (organized by the Ministry of Finance including guests like MPC members and known economists) about the possibility/need/will of Poland entering the Eurozone. I do not expect any shocking conclusions from this public debate and still believe Poland is not ready for such a move. We still need autonomic monetary policy; otherwise we run the risks of following the footsteps of the struggling Eurozone countries. The Zloty itself remains rather stable despite high volatility on global markets.

Analyzing the chart we see that the EUR/PLN has been losing impetus since the beginning of the month. Any upward corrective movements’ peaks were lower and lower. After last weeks’ test of 4.20, the market turned around and remained in the short-term downward trend. Currently, the EUR/PLN is testing the crucial support of 4.14. If broken, it is very possible traders will target 4.12 and 4.10 afterwards. If the support sustains the attack, the corrective movement should take the EUR/PLN back to 4.17 next week. Those, who expect stronger upward moves, first need to conquer 4.20, the level which remains unbroken by EUR/PLN bulls this year.

Pic.1 EUR/PLN D1 Chart

Hungarian Forint (EUR/HUF) – new dovish leader at the MNB

The failure of the Italian elections and the consequent deadlock on coalition talks turned back caution in the head of market players. Italy’s risk premium measured by the BTP/Bund spread soared to 345 basis points on Wednesday and the euro remained under pressure during the whole week. On the economic frontline monetary policy actions gave a lot of possibility to grab the EUR/HUF pair but despite the MNB base rate cut to all time low (5,25%) on Tuesday followed by the official nomination of György Matolcsy as new central bank chief of Friday, the EURHUF pair movements showed great resilience. Matolcsy is known for being the right hand of PM Orbán and also a politician who favors uncommon policy steps. In a recent interview he stated western banks have at least 16 policy tools to support growth that indicates he will have a go with some of these.

Pic.2 EUR/HUF D1 Chart

Technically the forint lost about 0.5 percent against the euro in five days but on a longer timeframe the broad 290,2-296,85 range remained intact. The technical rectangle and the 38.2 fib level points out a strong support level lat 290,20 level where some profit taking will halt short positions. Alternative scenario of larger swing highs will enure if investor sentiment will turn even sour which is more than possible as Italy is ungoverned and the US is facing spending cuts worth 0,5 percent of GDP.

Romanian Leu (EUR/RON) – Real flows protect the RON from euro-atlantic turmoil

Despite a globally unsettled market, Romanian Leu stood stronger than previously thought. There has been the support from positioning ahead of real flows into the currency due to the weighing in of Romania into the JPMorgan EM index. On the macroeconomic side, a fall in unemployment to 6.6% positions Romania as one of the most resilient labor markets. The forecasted tendency in industry and constructions sector is viewed as positive by respondents to the statistics poll, while services and retail sectors appear to only hold their lines. Building permits have however fallen by 2,2% in January y/y. The National Bank reserve also helped the benevolent investors with an increase to 32.1 bn. EUR. That may mean the Bank has been a net Euro buyer around 4.30, a reasonable move in hindsight. Despite some tension in the ruling coalition, status-quo may be preserved for now. A very gradual improvement in the local currency looks like the first market’s option. Yet the RON may engage in some sort of negative correction mainly if the global scene continues to deteriorate significantly, and it seems that the market does not discount that risk fully.

On the technical analysis perspective, the downtrend is still in effect. We saw a quick breach of 4.3536, then the market shied away towards the upper channel line. Although a break of that line, above 4.3740 is not out of reach, the technical pattern currently points to a test of the 4.3438 support which is also 70.7% of the most recent upward push. Strong support is of course at 4.30 while the most serious resistance still around 4.40. Despite recent action, it still looks like the latter would be reached sooner than the former.

Pic.3 EUR/RON D1 Chart