The Hungarian currency surged yesterday on news coming from government sources that a big fiscal tightening package is in a pipeline. These information (see more in the Box below) have been clearly bullish for all Hungary’s assets so the forint got strong stimuli to attack the strong resistance standing at the EUR/HUF 262.35. The pair easily broke below this level and quickly marched to the psychological support of the 260.0. Although the pair temporary fell below this level the break was not sustainable and EUR/HUF closed above 260.0.
Today, though the market might start on a positive note digesting further details of the government fiscal plans, the event of the day will be ECB meeting and especially its press conference. Although we do not rule out hawkish comments from Mr. Trichet, our base-line scenario is that ECB President stick to the current pace of monetary tightening (a 25 bps hike by a quarter). We think that such an outcome of the press conference should be neutral for the forint, hence the EUR/HUF might continue to fight with the 260.0 barrier.
(CSOB - Investment research)