The Hungarian FX market finally got what it
has been waiting for. Results of the first
round of the parliamentary election are
already available and it must be said that
there are clearly market positive – at least
for the two reasons. First, the ruling Socialist
are leading as they gained 13 mandates
more than its more populistic opposition rival
FIDESZ (for more see the News section).
Secondly, both of small parliamentary
parties – the Free Democrats and the
Hungarian Democratic Forum – have passed
the 5% threshold. Hence, even thought the
election fight is still far from over, the most
market friendly election scenario - a new
four-year mandate for the current coalition of
the Socialist and Free Democrats - looks
more likely after the first round.
Thus, good news for the forint but will it be
enough for a change in the market
sentiment, which has been even more
bearish after Friday’s strong pay-rolls and
another jump in US and EMU yields?
Moreover, the government is going to
release the preliminary March public budget
data this afternoon and as several reports in
local press indicated that the targeted deficit
would be overshot by a huge margin
(between HUF 80bn to HUF 100bn). So the
market might get nervous, despite the
positive outcome of the first round of the
elections. Hence, it is quite possible that
after an initial positive correction the election
results will be overshadowed by other
factors including worsening of the market
sentiment in emerging markets (implied by
higher yields in core markets) and the
release of the March public budget figures
(though the poor outcome has been mostly
priced in).
So, we expect a very volatile
session today, while the EUR/HUF should
dip in early trading as an reaction to the
election outcome, but later on the factors
mentioned above might have a stronger
impact and any forint gain’s could be erased.
However, even if EUR/HUF turns north, it is
no likely that it will go back to test the strong
psychological resistance standing at 270
today.
(CSOB - Investment research)