The question is then that of what to expect from the EUR/HUF cross? As clearly noted in the ECB introductory remarks which followed the 21 April Governing Council meeting “...we decided to keep the key ECB interest rates unchanged. We continue to expect them to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases...

However, the ECB did add a curious note of anxiety in the conclusion of the statement noting that “...the signals coming from the monetary analysis confirmed the need to preserve an appropriate degree of monetary accommodation in order to secure a return of inflation rates towards levels that are below, but close to, 2% without undue delay...”  Naturally, ‘without undue delay’ may be interpreted in many ways. It may be in reference to the upcoming ‘Brexit’ referendum; an indication the economy is adapting to a disinflationary environment or that perhaps the ECB has detected an increased rate of disinflation. Whatever the interpretation, the opening and concluding paragraphs sound dissonant. 

In March of 2015 the MNB base rate was at 1.95%. Six successive reductions over the next 12 months have the base rate at 1.05%. Over this time, the Forint reached its low versus the Euro in July of 2015 at Ft 317.419 and has since traded in the above range of Ft 307.50 resistance to Ft 316.00 support.

For comparison, the light grey candles represent the EUR/PLN exchange over the same time frame. Hungary, Poland and the Czech Republic share similar economic models and heavily weighted on a shared manufacturing trade with Germany. It’s clear from the comparison that the Zloty is responding to the Euro similarly, especially from the the 3 December ECB meeting.

It’s reasonable then to conclude that ECB policy as well as the EU economy is driving the EUR/HUF exchange. Further, it seems that EUR/HUF is range bound. It’s unlikely that the pair might trade out of its range based on the metrics of the Hungarian economy; it would have done so already according to the MNB data. Lastly, unless the EU suddenly breaks out of its low growth cycle there really isn’t much else that could drive the pair above Ft 316.00 or strengthen it below Ft 309.34.  

Mike Scrive
Technical Analyst
Accendo Markets

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[1] MNB Press Release 26-4-2016