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Euro Strength Lends Support to Forint, Though EURHUF Conditions Remain Bullish

HUF
  • Single currency strength on the back of some stronger-than-expected European Manufacturing PMI figures has lent support to the euro proxies. EURHUF is down 0.28% at typing, through its earlier lows just above 385.00, though price remains contained within Tuesday's extremes.
  • The cross broke above key resistance and the bull trigger at 385.77 yesterday, though has since fallen back below this level. The break, nevertheless, strengthens current bullish conditions and opens 387.38, the 61.8% retracement of the Sep 28 - Nov 14 bear leg. Initial support to watch lies some way out at 380.96, the 50-day EMA.
  • The forint has been under notable pressure since last week when NBH Deputy Governor Virag strongly hinted that the pace of rate cut reductions will increase, with the local currency facing an additional headwind at the end of last week when Prime Minister Orban urged the central bank to priortise growth. Indeed, sell-side consensus is now leaning toward a 100bp move when the central bank meet next on Jan 30, compared to the 75bp cuts at the prior three meetings.
  • A more dovish policy mix threatens the carry profile of HUF. This has been evident in PLNHUF and CZKHUF, both of which have recorded notable bounces off of their YTD lows and are trading back above the 50-day EMAs.
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