HUF: EURHUF Reverses Bulk of Wednesday’s Losses Ahead of ECB

EURHUF (+0.2%) has rebounded from yesterday’s lows, with broader weakness noted across the EMEA FX space this morning. Strength in global equities following yesterday’s post-CPI rally has failed to offer the forint lasting support, as the cross continues to consolidate this week’s earlier gains.

• Hungarian inflation was below-expectations in August, bolstering the case for a resumption of rate cuts at the September meeting and contributing to ongoing HUF weakness. However, the central bank stated last month that the potential scope for further easing would depend on the policies of the major central banks.
• Yesterday’s CPI data in the US solidified bets of a 25bp rate cut at the next FOMC meeting, while today’s ECB press conference will be closely watched for any potential clues on the scope for further easing later in the year. A 25bp cut to the deposit rate is widely expected.
• In Hungary, most sell-side analysts are expecting a 25bp cut this month (and likely one additional 25bp move towards the end of the year), though HUF weakness poses a downside risk given the importance the central bank has placed on Hungary’s risk profile.
• From a technical perspective, the sharp move higher in EURHUF Monday resulted in the break of resistance at 396.06, the Aug 16 high. This highlights a short-term bullish reversal and signals scope for a stronger recovery towards the more important resistance at 399.21, the Aug 5 high.