Sell-off in a domestic bond market following an unsuccessful 5Y and 10Y government bond auction spilled over to the Hungarian Forex market and the forint weakened yesterday. Although the currency losses were rather modest (taking the opening and closing values the forint remained actually almost flat against the euro) the negative price action was quiet transparent.
Intra-day: immediately after the auction, the EUR/HUF pair left a sideways trading pattern, turned north and paddled to the 251 area. The pair closed at 251.22, while the forint slightly extended its losses during the off-shore trading.
Today, the domestic e co calendar contains a release of the December report on wages. Although interesting wages data is not a market mover (actually gross wages rose 5.4% y/y in December 2005). In our view, the forint will mainly monitor a development on the domestic bond market and try to evaluate whether yesterday’s change in market sentiment has been just temporary or it will last longer. In any case, however, EUR/HUF should stay in its favorite range between 250 and 252 levels.
(CSOB - Investment research)