After a very quiet week, the local story is back in focus for markets. Today, we will see retail sales in Poland for January. Goods spending remains subdued, but has improved after a poor third quarter.
On Tuesday, the National Bank of Hungary will hold its last meeting under the current governor. While the rate decision is expected to be a non-event, the communication following January's surprisingly high inflation will have the market's attention. Also on Tuesday, we will see PPI in the Czech Republic, where agricultural prices in particular are being watched more and more by the central bank due to rising food inflation. Thursday and Friday, we will see the final fourth-quarter GDP numbers in Poland, Czech Republic and Turkey.
Markets in the CEE region are still focused on the Ukraine story – although the second half of last week showed that positive sentiment is gradually fading from the FX market. Over the last few weeks, the European stock market have been a good leading indicator for the PLN and HUF.
However, it has been showing some correction in the last few days, and in our opinion, we should see something similar for CEE FX. We already saw some signs on Friday in the HUF market and we think there is more to come. Positioning is clearly heavy long in these markets after the rally in recent weeks and the surprise risk is, in our view, more on the downside in the Ukraine story now given the transition to a rather bumpy stage. USD-crosses in particular therefore have good potential for some tactical long position building as the market takes profits in CEE on incoming headlines.
