Forex - Emerging EMEA Weekly Outlook & Strategy for 12-16 Nov

 16:10 (GMT) 09 Nov

  [Economic Data]

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The wider picture on EUR/USD still suggests that we need to see a break outside 1.1297/1.1620 to point to any possibility of a fresh direction, though even then those with a longer focus might want to see at least a day close outside, maybe two. The fear of getting long at the top or short at the bottom is hard to shake off! For the fast money the lower end of the range is close enough to suggest an early sell on Monday morning.

Last week, most EMEA currencies suffered from the uncertainty created by the U.S. midterm elections and from a hawkish FOMC statement. The lira underperformed, as the limitations of exemptions from U.S. sanctions on imports of Iranian oil became clear: they apply to only 25% of Turkish imports from Iran and they will be reviewed in 180 days. The zloty had the smallest sell-off, as its strong fundamentals provide some resilience to global factors and to the NBP's dovish stance. In the coming week, we think that most currencies will be weakened by domestic GDP data and we will watch out on Wednesday for an upside surprise in U.S. October CPI (Continuum Economics: 0.3%) /hawkish soundbites from Fed Governor Powell, that would reinforce Dec hike expectations.

Emerging EMEA Weekly Outlook & Strategy for 12-16 Nov (0101-FRCC-C01)

Wednesday we see Polish Q3 preliminary GDP decelerating to 4.5% y/y in Q3 from 5.0% y/y in Q2 (Consensus: 4.7% y/y). Investment and household consumption likely remained the main growth driver in Q3 as attested to by robust construction and retail sales growth data from the stats office. We expect GDP growth to nudge down in 2018 from 4.7% y/y in 2017.

We think that the zloty will depreciate further on the back of a softer Q3 GDP, with the EUR/PLN potentially breaking the 4.2962 resistance level.

Emerging EMEA Weekly Outlook & Strategy for 12-16 Nov (0101-FQNV-C01)

On Wednesday, we expect Hungarian Q3 preliminary GDP to decelerate for the third consecutive quarter in Q3, to 4.2% y/y from 4.6% y/y in Q2 (Consensus: 4.3% y/y). Consumption probably remained one of the primary drivers as attested to by the statistical office data indicating still quick retail sales growth, supported by the strong labour market and higher wages. We still expect GDP to grow by 4.2% in 2018, driven by robust consumption as well as investment.

If the Q3 GDP data is indeed lower than the consensus forecast of 4.3% y/y, given that the MNB already expects GDP growth to moderate in 2019, it will strengthen its case for no tightening. Hence the forint will weaken in the coming week with the EUR/HUF nearing the 321.72 resistance level.

Emerging EMEA Weekly Outlook & Strategy for 12-16 Nov (0101-FRBX-C01)

On Tuesday or Wednesday, Russian Q3 preliminary GDP should be released. We are forecasting that the economy grew by 1.4% y/y in the period, a tad above the Economy Ministry's estimate of 1.3% y/y with growth probably slowing from 1.9% y/y in Q2 (Consensus: 1.4% y/y). Recent stats office data indicated softer readings in the industrial, construction and trade sectors. We see GDP growth staying in the 1-2% y/y range in the next several quarters, driven largely by higher oil prices.

This weekend, we will be looking out for the outcome of the OPEC+ meeting; if Russia agrees to oil production curbs, we can expect a strong open for the rouble on Monday. Yet the most recent news flow suggests that Russia is unlikely to reach a final decision this weekend hence the main driver will be the outlook for U.S. sanctions against Russia. The Democrat takeover of the House of Representatives is likely to trigger tougher sanctions and the market will continue to sell off Russian assets on that basis next week. We expect USD/RUB to test the USD/RUB 68.30 resistance level.

Emerging EMEA Weekly Outlook & Strategy for 12-16 Nov (0101-GCZZ-C01)

The rand will weaken in the coming week, with the USD/ZAR breaching the 14.3565 resistance level, as strong U.S. October inflation data confirms expectations of a December Fed hike and unions continue to pressure the state with demands for a ZAR 7bn bailout of state-owned enterprise Denel.

Emerging EMEA Weekly Outlook & Strategy for 12-16 Nov (0101-GCZZ-C02)

On Monday, the Turkish Sep current account balance will be watched closely, especially after Friday's comment by the Turkish trade minister that Turkey aims to reach USD 170bn in exports at end-2018 (they were are at USD 123bn in the Jan-Sep period so that is in line with the trend). Consensus is looking for a surplus of USD 1.94bn from USD 2.59bn in August. Regardless of the headline, the financing structure of the C/A remains weak and we expect geopolitical conflicts and higher oil prices to hamper the adjustment in the current account trend, leaving Turkey vulnerable to short-term financing constraints.

The Turkish Treasury decided not to hold auctions for two 10-yr bonds and one 7-yr bond next week, as its financing needs have declined following the savings measures taken by the MTP. This should augur well for Turkish bond prices next week with 10-yr yields falling further towards 16.50%. Because the Treasury's decision sends the signal that there is an improvement in one of investors' main concerns, i.e. the external funding outlook, the lira should also benefit with a potential test of USD/TRY 5.2930 support. A strong current account should also provide a boost to Turkish assets.

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