CZECH Republic. China agrees to increase Automobile, Mechanical and Electrical Engineering investments in CZECH Republic from CZK 500 million in 2015 to CZK 1 billion. China investments in Germany account for 20% of all German investments. GE agrees to manufacture the Aviation Turboprop engine and create 500 jobs.
EUR/CZK closed 27.0240 while Governor Singer at the CNB agrees to maintain the 27.000 floor through 2016 as CZK 200 billion or EUR 7.4 billion was spent to intervene in 2015 to maintain the floor. CZK saw a trade surplus of 0.5 in all 2015. The 10 year yield trades currently 0.505, down from 0.679 on February 8. Inflation is expected to reach the 2% target in Q1 2017 and 2.1 in Q2 2017. GDP in 2016 is expected at 2.7 and 3.0 in 2017.
3 month Pribor 0.3 is expected in 2016 and rising to 0.9 in 2017. One day Pribor trades 0.13 and 0.14 at the 1 week interval. The 2 week Repo rate currently trades 0.05 and is stable for many years.
USD/CZK Vital levels are located from the 24.27 close at 24.46, 24.83 and 22.09. EUR/CZK from 27.0240 close, next vital points are located at 27.0330, 27.0432 and 26.0359 if the 27 floor ever breaks.
USD/HUF from the 277.12 close, next vital levels are located at 234.69, 281.92, 287.69. EUR/HUF from 308.360 close, next vitals 311.6527, 313.11 and 297.8955. The Forint as EUR/HUF is massively oversold intraday and massive overbought as USD/HUF. The Forint is caught between the uncertainties in Yellen’s next raise V Negative interest rates in Europe and offers terrific volatility. The EUR/PLN drop has had the greatest impact on the Forint over the past year yet the Forint tracker currency is easily CHF/HUF. From the CHF/HUF 279.995 close, next vitals are found at 284.6459, 287.2782 and 252.57 way below. Intraday CHF/HUF is oversold and overbought longer term. Any pair as other currency/ HUF are corrective rallies.
Inside Hungary’s central bank, the MNB or the Magyar Nemzeti contains a twice monthly meeting of the Monetary Council. The last Inflation report with Core at 1.3 and headline at 0 projects 2.4% Core and 1.7 headline in 2016 and 2.6 for both Core and headline in 2017. Inflation target in Hungary is 3% surrounded by a + or minus 1% band. Inflation drivers in Hungary are Unprocessed Food, alcohol, tobacco and severe negative, – 8% in fuel. GDP is projected at 2.1 in 2016 and 2.3 in 2017. Wages fall inside the 3 – 4% range since 2015. Balance of Payments are now reported since June 2014 by the MNB on a quarterly basis.
Interest rates, the MNB rate, in Hungary dropped from 2.6% March 2014 to current 1.35, a record low especially since the 11% rate at the 2008 crisis. Similar to the CNB, Hungary is driven by the 2 week MNM bill. It currently roams between 0 – 2% for all 2015. The interest rate channel is 200 basis points wide with a 75 bps allowable movement on either side. In this instance, the MNB operates overnight rates similar to Sweden and Norway yet sets the 1.35 point at the 3 month interval and similar to the old Bank of Canada methodology as Canada set overnight rates at the 3 month Treasury Bill. The 10 year yield sits at 3.450, down from 3.720 January 2016.
USD/RON from the 4.0297 close, next vitals include 4.0518, 4.1261 and 3.4610 way below. EUR/RON from 4.4793 close, next points are found at 4.4788, 4.4908, 4.3779 and 4.4080. The Romanian Leu as EUR/RON and like EUR/HUF is expected a big move as price pressures in its current location cannot hold. Current NBR Romanian interest rates at 1.75 was 4% November 2013. ROBOR and ROBID, bid and offer rates in Romainian money markets are trading between 0.04 – 0.39 while the 10 year yield trades at current 3.395 and held steady since February 1. January 2014, the 10 year was 5.60 and 2.773 January 2015. Lows at 2.773 are lows not seen since the 2008 crisis. Crisis highs were seen at 9.75.
Inflation in Romania is negative since June 2015 as annual Core in Q4 2015 was minus 3.1 and up from minus 3.4 at end Q4 2015. Food, fuel, alcohol and tobacco are driving Inflation as well as the 9% reduction in VAT taxes. Wages are up, taxes down while productivity is down. The output gap is expected positive by 2017 from current negative. The Inflation target since target adoption in 2005 is 2.5% inside a 1% band. Inflation is expected negative all 2016 and positive by 2017 as consumer demand is expected to increase.
USD/PLN from 3.9287 close, next vitals, 3.9409, 3.9792 and 3.2479 way below. EUR/PLN from 4.3745 close, next 4.3571, 4.3315, and 4.1881 far below. EUR/PLN is oversold yet a break of 4.35 is needed to see the downtrend resume. The 10 year yield at current 2.945 saw 6.637 at crisis highs and eventual 1.996 lows. Current price like CZK, HUF and Ron hit lows and are in recovery mode.
CPI Core was negative 0.8 in 2015, minus 0.2 February and 0.0 to strip food and energy with projections to 1.1 in 2016 and 1.5 in 2017. The fall in commodity, fuel and meat prices contributed to the current lows. Economically, public sector spending is down , net exports off due to exchange rates in USD and EUR yet lending is stable, consumer demand rising as well as employment. Poland is not in immediate danger of wholesale economic problems but appears to be stable.
GDP is projected to 3.3 in 2016 and 3.5 by 2017.The wild card is the current Re discount rate at 1.75 in headline interest rates with a projected decline to 1.72 for 2016 and 2017. Factor the yield on 7 day bills in Poland’s money market is current 1.50, lower the Re Discount rate further closes the interest rate gap particularly when interest on reserves costs 0.9% currently.
Brian Twomey, Inside the Currency Market, btwomey.com
BRIAN TWOMEY ON TRADING 