Hungarian forint at a crucial level: huge strengthening potential

As it seems, the Hungarian forint got through its critical stage. After last year’s plunge, it has been showing an upward trend due to the Hungarian National Bank’s measures. The Hungarian National Bank (MNB) tried extraordinary measures, like interest rate hikes, to support and secure the stability of the Hungarian currency.

During its lowest period, one euro was worth more than HUF 430. By April, the forint strengthened and reached the 370/EUR zone. Napi.hu reported that for the last couple of months, the forint exchange rate has been stable. However, there are speculations about whether it has reached its equilibrium exchange rate or maybe it will show an even more expressive strengthening. Earlier, we reported that there might be hope for forint to reach the 340/EUR zone, which you can read about HERE.

Past tendencies

The strengthening from 430/EUR to 370/EUR has effectively made up for the currency’s decline from the previous year by making it one of the strongest strengthening currencies of the year. It encountered resistance at the 370 zone, which was the forint’s lowest point during the Covid pandemic. The currency often reached this zone, but it always recovered from it, although it did not make up for the weakness of the previous two years, particularly the pandemic year of 2020. This level is presently a boundary within the contradicting, more grounded heading, as is habitually the case in technical analysis. The exchange rate is attempting it for the fourth time so far. But each time, it has always reversed to the weak direction, in spite of the fact that the drops have gotten smaller and smaller.

Is there hope?

As we have reported HERE, the forint was not able to perform a breakthrough from the 370/EUR zone during its third attempt. The third breakthrough only showed a very minimal strengthening. Now, the fourth attempt might become a very significant milestone in the forint’s exchange rate history. If a breakthrough did happen from the 370/EUR zone, it would probably be a much bigger and further strengthening. The next stop for forint would be the 340-345 zone, which is quite impressive. If this were to happen, it would be fundamentally justifiable, as it only reached that level between March 2020 and around the beginning of 2022.

Economic background

Of course, the country’s economic situation has a key role in the changing of the forint’s exchange rate. The most fundamental basis of the exchange rate is the external balance. Within this, the current account balance has improved significantly compared to last year. This year is still showing a deficit, but much smaller than was expected by Hungarian National Bank and the government. In addition to that, the external balance is in a surplus thanks to strong exports and lower energy prices.

Conclusion

There is no real guarantee of reaching the 340/EUR zone. The Hungarian National Bank might approve the current balanced state of the forint. Therefore, further measures will not be made for some time. However, the breakthrough might come finally in the next couple of days. In any case, the next few days could be decisive for the future direction and the fate of the Hungarian currency.