The Hungarian forint was hurt by the renewed worldwide risk aversion on Tuesday evening. The pair broke the key 275.00 support level and rose to as high as 278.00 overnight, opening the way for further weakness. The currency was trading in the range of 275.00 and 290.00 between April and June and the market may try next to find the weaker end of the new trading range. The general backdrop however does not seem favourable as equities have been losing ground, core market yields are lowering together with commodity prices. This suggests that global markets have probably started to worry about the much expected turning point and markets may challenge the recent optimism around the globe. A low return environment may not necessarily be bad for high-yielding currencies, like the forint, but risk aversion has so far kept the Hungarian currency in the same basket as other emerging market ones and as long as this lasts, we may not see it outperformance from the forint.

The Czech koruna’s gains after good foreign trade figures appeared short-lived as the Czech currency weakened yesterday. The May trade surplus reached CZK 11.7bn, partly due to a sharp reduction in imports of raw materials used by exporters. Total imports dropped by 23.2% Y/Y, and exports fell by 21.2% Y/Y (exports were helped by a two-thirds rise in auto sales to Germany, thanks to the scrap subsidy there). Nevertheless, global sentiment was more important guidance for the Czech forex market and the EUR/CZK pair moved north and broke above the big 26 figure. Today, the domestic calendar is empty. Therefore, the currency will track core markets – particularly equities and the EUR/USD pair, which are the best market indicators of global sentiment in emerging markets.

Poland The Polish zloty weakened further as sentiment on global markets deteriorated on Tuesday. The pair got above 4.4 EUR/PLN despite the Finance Minister saying that he expects the currency to gradually strengthen for the rest of 2009. The domestic calendar is completely empty for the rest of the week. Hence the zloty should focus on the starting US earnings season and the subsequent reaction on the global equities and risk aversion. We bet on a moderate negative correction in the near term and continue to be strongly bullish on the Polish currency in a one year horizon.

KBC