Polish Zloty (EUR/PLN) – Larger correction expected?

Cyprus has made it really difficult for emerging markets currencies. It would be really hard to find any emerging currency that gained against the majors. Local factors did not matter at all. In Poland macro data keeps disappointing. CPI inflation remained at 1.4% in February while industrial production declined by 2.1% on a yearly basis. The unemployment rate also stays high at 14.4% but again retails sales declined, this time by 0.8% (yearly basis). That is the worrisome data as much of Polish GDP depends on consumption. More and more mysterious becomes April’s MPC possible decision about interest rates. It was widely expected the central bank will take a break after this month’s 50bp cut. If macro data keeps disappointing, it is possible we will see some action sooner.

Pic.1 EUR/PLN D1 Chart

As we see on the chart, The EUR/PLN broke through the short-term downward trendline and the crucial 4.16 resistance. The upward movement reached 4.19, the highs from mid-February. Currently, we are observing a corrective movement, which can take the market back to 4.17. The stochastic oscillator also suggests such downward move as it seems the market is overbought right now. On the other hand, if the Cyprus situation is not solved next week, the EUR/PLN should be targeting this year’s highs of 4.21.

Hungarian Forint (EUR/HUF) – Downgrades hit Hungary again

All three CE currencies were under pressure during the Cyprus Calvary week that on Friday continued with troika talks as Russia denied pumping extra funds to the offshore state and Cypriot parliament refused to tax bank deposits. Despite verbal intervention attempts from the governing Fidesz party politicians the forint continued to lose value as Moody’s downgraded four major domestic banks and S&P posted a negative outlook on Hungary’s sovereign rating that is already in junk category since December 2011. The Hungarian forint, which hit its 14-month low against the euro at 308.50 on Monday, was later on followed by the koruna and zloty as in both countries dovish comments from central bankers signed weakness in economy.

Pic.2 EUR/HUF D1 Chart

Technically, only swing highs on weekly chart can serve as important resistances, like the 317.50 horizontal line that was touched three times since 2008. So far carry traders don’t seem to favor the return to the Hungarian currency therefore speculative trading dominates the field. In case of positive outcome in Cyprus the smaller 308 resistance on EUR/HUF may stay intact and a little correction towards the 300 level break out level can happen.

Romanian Leu (EUR/RON) – Spillovers

Cyprus blew up risk takers’ feelings, and got the RON on the back foot. Breaching 4.40, the EURRON still did not find enough stamina to overcome the next strong resistance, and that RON resilience may be signed by the National Bank. The psycho-financial correlations among Cyprus – Greece – Romania (Greek banks own roughly 1/5th of the Romanian banking market) did little to help the Leu. Liquidity in the system has generally been larger than usual, allowing for lower rates and lending a hand to the RON bears. The current path is prone to further slide, but one may reasonably think that outside black swan events, the NBR would quash the volatility even before a touch of, say 4.5. 

On the technical analysis view, the overall picture appears bullish-er. The break of 4.40 opened the way for 4.4280 test that we got on Friday. This 50% retracement is then followed by the 4.4410 resistance and then the 61.8% retracement of the most significant downpulse, at 4.4560. However the new uptrend is rather steep, and a close below 4.440 means support at 4.38 and 4.3650 in sight.

Pic.3 EUR/RON D1 Chart