Polish Zloty (EUR/PLN) – Inflation keeps diving

After the previous exciting week on currencies markets, this past was much calmer. Volatility declined and the movements were not as abrupt. What is interesting, all the described emerging markets currencies below reached crucial support or resistance levels. In Poland, the main topic this past week was the CPI index reading. Consumer inflation declined to 1.3% in February, which is below the lower bound of the central bank’s inflationary target of 2.5% +/- 1%. Does this mean interest rate cuts will continue? Possibly. After last 50bp cut I was expecting the MPC to take a break in April and eventually cut rates one more time in May. Now, after we see that inflation is below target, it is possible that rates will be lowered sooner. We need more data to come to a conclusion but low inflation makes a pretty strong point.

How does it look on the charts? The EUR/PLN rebounded from 4.13 and attacked the resistance of 4.16, which is at the 41.4% retracement level of the last downward move. That is also the point where the short-term downward trendline runs. Breaking this resistance would push the market higher, probably to 4.18. If the EUR/PLN does not break the resistance on Monday or Tuesday, the corrective movement should take it back down to 4.13. Much will depend on the FOMC monetary policy meeting and from the local market – the PPI and Industrial Production readings on Tuesday.

Pic.1 EUR/PLN D1 Chart

Hungarian Forint (EUR/HUF) – Hungary as the main topic in Brussels

The recent staff change in MNB and the fourth modification of the new constitution by the Orban cabinet repeatedly turned the spotlights on Hungary. Media headlines from New York to Tokyo reported the new amendments being antidemocratic as they include the limitation of the power of the Constitutional Court  and scrap all decisions made by the court before 2012.

EC President Jose Manuel Barroso said the amendments raised "concerns with respect to the principle of the rule of EU law and that further assessment will take place. The words of EU's justice commissioner Viviane Reding were also exceptionally though. “You don't play around with the constitution. You can't go and change the constitution every six months," Reding said. On Friday PM Orban did not show any signs of capitulation asking for tangible facts from critics proving the changes - his party ruling with a 2/3 majority in the parliament – are against democracy.



Pic.2 EUR/HUF D1 Chart

In such crossfire, the forint lost two percent against the euro only in the last five days and touched a 41-week high with a peek of 307.38 on the EUR/HUF chart. Technically the weekly resistance level could hold back the huge forint short pressure but not much is in favor of optimism. The mentioned level is also an R3 weekly pivot level but with a break above it next resistance is only around psychological 310 and 320 levels

Romanian Leu (EUR/RON) – The classic 4.40 resistance

This week EUR/RON went whiskers-close to 4.40. Rates moved lower, and the RON got dragged into the sink. A seasonal liquidity surplus added to the overall downtrend in short-term interest rates and helped push one week maturities by 2.5 p.p. in the last three trading days to around 2.65%. Inflation eased slightly to a 5.65% y/y rate. Inside the industry and retail sectors, a glimmer of hope was given by the 0.3% m/m rise in industry and the 7% increase in the retail activity in January. Tensions inside the government coalition also played a role, while regional sentiment worsened by the forint’s slide spilled over to the country`s Eastern border. The week ahead may provide some short-term relief, but one may still be mindful of a breach of the now classic 4.40 resistance if the global risk environment becomes even a tad more problematic.

On the technical analysis perspective, now that the market broke the channel and pushed toward 4.40 we may see a short pause. It would actually be a nice pattern constructed if a push back toward 4.3436 would generate a pattern similar to rectangle. Any follow-through above 4.40 is likely to have the participants push toward 4.4280, which stands as a resistance stressed by the 50% retracement of the fall from December. Support is to be found at 4.3650 and then 4.3436.

Pic.3 EUR/RON D1 Chart