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HUF: The HUF base case is for some further HUF weakening (to 335 vs EUR) as the excessively easy central bank policy has led to credibility problems.
However, we believe EURHUF should eventually consolidate and find a clearing level, given Hungary benefits from a strong BoP position. June’s CPI printed at 3.1%yoy, above the NBHs target for the first time in 5 years.
Trade tips: HUF positioning for further weakness via options. Thus, initiate 1m1w EURHUF call spread fundamentally, (326/334).
CZK: Decrease the overweight as trade tensions linger. While, further CNB policy rate hikes are on the cards as the economy fundamentally, seems to be robust with a clumsy labour market. The basic balance is also positive at 2.4% of GDP, driven by both a current account surplus and a net FDI surplus. We continue to hold an OW, but size it down extensively, given the high exposure to escalating trade tensions in the auto sector.
RON: Twin deficits should further exert pressure. We continue to hold UW positions in RON and recently refinanced our long EURRON 6m FX forward into a 12m trade. The current account deficit is expected to reach 4.2% GDP this year and the fiscal deficit to reach 3.6% of GDP by year-end. NBR has been intervening substantially to prevent a depreciation, which we believe is ultimately unsustainable. Political risks are also on the rise.
Trade tips: Long Jul-19 EURRON forward Short EURCZK.
PLN: With Euro-area activity recently surprising to the upside, we move OW PLN. Valuations remain attractive, screening around 5% cheap in JPM’s BEER FV model. Additionally, Polish Zloty should be relatively less impacted to increased trade tensions in the auto sector (with about four times less export/GDP exposure than Hungary or the Czech Rep.).
Trade tips: Buy 3M EURCAD 25D call vs short EURPLN 25D call, equal vega. Courtesy: JPM
