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MNB Holds Rates Steady at 2.1%, EURHUF Respects Support

MNB Holds Rates Steady at 2.1%, EURHUF Respects Support

Jeremy Wagner, CEWA-M, Kara Dailey,

Talking Points:

  • MNB holds rates steady at 2.1%
  • CPI is expected to gradually increase, reaching the 3% target by mid-2015
  • After bouncing from trend line support at 305 EURHUF looks to test resistance at 310

With disinflation expected to diminish, the Hungarian Central Bank has once again elected to maintain the current base rate of 2.10%. The decision reflects a narrowing output gap which, according to the Monetary Council, can be attributed to strong domestic demand overshadowing an external environment characterized by a protracted recovery.

While declines in industrial production and foreign trade kept output in August below its potential, the effect is thought to be fleeting. Weak external demand is expected to be offset by a rise in consumer prices resulting from imported inflation. Thus the mid-term outlook remains moderate with CPI expected to gradually increase, reaching the target by mid-2015. The outlook is further supported by a fall in unemployment (-0.3%) and a rise in retail sales (+0.2%).

In the capital and financial markets, investment recovery is expected to be sustained due to EU funding and the central bank’s Funding for Growth Scheme which continues to open lines of credit for small and midsize enterprises. Furthermore, Hungary’s high external financing capacity and declining external debt leaves the country less susceptible to negative shocks emanating from growing geopolitical risks abroad.

This unwavering economic outlook has left the EUR/HUF near an important level at 310 which will determine the direction of the near term trend. On Oct 13, prices jumped higher from near the red trend line. Then, on October 16, the daily candlestick drafted a very long wick to the upside. This indicates overhead selling pressure. The high of that candle near 310 now becomes a key resistance level to watch.

Many times, after a long wick, prices will come back and retest a portion of that wick. If that is the pattern in play now, then prices are likely to stay below 310 for a retest of 305 and possibly 300.If prices are successful in breaking higher, 314 becomes the next level of resistance to watch.

The USDHUF continues to trade within its 240-250 range. Positioning towards USD longs has gotten stretched so look for continued consolidation inside this range.

EUR/HUF Daily Chart

dailyfx EUR/HUF daily chart.

Chart Created by Jeremy Wagner Using MarketScope 2.0

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.