June 21, 2022 07:25 GMT
- Geopolitical tensions has been weighing on the HUF in the past two months, which remains extremely ‘cheap’ relative to major crosses (EUR, USD) despite NBH effort.
- Last week, the NBH surprised the market and hiked its 1W depo rate by 50bps to 7.25% to support the forint, but the HUF continues to be driven by ‘external’ factors such as market uncertainty.
- MT chart on EURHUF shows that the momentum still looks bullish. First resistance to watch on the topside stands at 400, followed by 402.90. On the downside, support to watch stands at 395, followed by 393.
- HUF remains the most ‘undervalued’ currency among the G10/CEE world using a ‘fair’ value approach or historical ranges.
- The forint is currently trading 30% below its fundamental value (vs. USD, using BEER FX model).
- The chart below ranks the major G10 and CEE currencies based on their percentage difference between the current spot rate and their 'fair' value, which we define using a Behavioral Equilibrium Exchange Rate (BEER) model (using terms of trade, inflation and 10y interest rate differentials as explanatory variables).