Hungarian forint at its peak, but technical hurdle to come, says analyst

After a sharp weakening, the Hungarian forint has strengthened against both the euro and the dollar in recent days. At noon on Monday, the domestic currency rose to 373 against the euro. It was a new two-week high. What is more, the forint strengthened to 332 against the dollar, which was a new 15-month high, said Attila Weinhardt, Portfolio analyst.

Two-week high, 15-month high

The forint climbed to a two-week high against the euro and a more than one-year high against the dollar on Monday morning. With the former at 373 and the latter at around 332, the currency has had a very good day, InfoStart quotes Attila Weinhardt, analyst at the Hungarian economic news portal Portfolio, as saying.

One of the main domestic factors in the forint appreciation is that the central bank interest rate remains very high, at 16 percent for overnight deposits. In addition, the investor environment abroad is supportive, the Portfolio analyst explains. As an example, he cites that the Fed, the US central bank, appears unlikely to raise rates further after July and is expected to start a cycle of rate cuts next year, starting in the spring and early summer.

The market hopes that the European Central Bank (ECB) will soon embark on a similar exercise, he noted.

In other words, he says, pricing in the top of the rate hike trajectory and then being fuelled by optimism about the cut, which is what matters most in the international environment right now. “This is what is also underpinning the so-called carry trade strategies that are playing on interest rate differentials, which is also driving the forint to stronger and stronger levels,” he said.

Technical barriers await the forint?

Based on this week’s macro calendar, which is rather uneventful, Portfolio’s analysts believe that the forint’s appreciation could persist. However, it is important that international sentiment remains favourable. At the same time, both the forint-euro and the forint-dollar are facing very strong technical barriers at a few units distance, signalling that there is limited room for further domestic currency strengthening, he added.

In Mr Weinhardt’s view, these technical barriers are in the 369-370 range against the euro and in the 329-330 range against the dollar. Basically, these technical levels could put a stop to the forint’s momentum.