After significant depreciation during the day and some recovery at the end of the Tuesday session Hungary’s forint kicked off Wednesday trading in a relatively good shape, having opened around 296.50 to the euro. We can expect large volatility both domestically and globally in the days ahead for a number of reasons: (i) positions can be reshuffled over monetary policy changes expected from the Fed; (ii) the elevated tensions in Turkey could lead to unforeseeable consequences and (iii) some important messages about the European Central Bank’s (ECB) bond purchase programme could be delivered at today’s constitutional court hearing in Germany.

Amidst negative global investor sentiment and rising USD yields Hungary’s forint briefly weakened to 301.50 against the euro, which marked a 1.5-month low for the HUF. As the mood brightened, though, the forint regained its composure and recouped its losses in the evening, firming to around 296.50/297.00. This is where it started the day today.

As Hungarian government security yields rose sharply yesterday (by 40-50 basis points) and yields are now possibly more attractive to many investors (the yield on the 10-yr benchmark jumped to around 6.40%), it is possible that bond purchases will pick up today and that could shepherd the HUF towards stronger levels. However, such waves could prove to be only temporary as the pricing of expectations of Fed moves could be a longer process.

From a technical analysis point of view the forint has apparently dodged the bullet (of a larger weakening), as Wednesday’s candlestick chart shows a marked recovery, which increases chances of continued HUF gains.

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