The EUR/USD should closely follow important US macro releases this week

On global markets:

The EURUSD should closely follow important US macro releases this week. The ISM index will be watched for whether it recovers above the 50 points mark. Labor market data will give markets indications on whether the consumer should remain the backbone of the US economy. In addition, markets will be following events around a possible impeachment procedure for President Trump.

CEE currencies:

The appreciation of the US dollar against the euro did not do much good for regional currencies, which mostly fell last week. The Polish zloty already saw most of its decline the week earlier when it was announced that the ECJ will have its ruling on FX mortgages published on October 3 this week. We actually revised our EURPLN forecast after the news already last week, assuming 4.36 at this year-end. If the ECJ ruling is positive for creditors, the Polish banking sector might be exposed to high losses, as banks will need to convert FX loans into Polish zloty, with risks of this being indexed to the LIBOR. The Hungarian forint fell the most in the region, fuelled also by the somewhat dovish decision from the central bank to increase the range of the targeted liquidity surplus by HUF 100bn. We upped our forecast for the EURHUF after this decision; we now see the currency pair trading within 330- 340 in the coming months vs. our 325-335 range envisaged earlier. The Czech koruna was an outlier from the weakening, due to the somewhat hawkish tone of meeting minutes. The minutes revealed that central bankers were rather thinking about a hike as an alternative to keeping rates on hold and not thinking about easing at all. The single-day appreciation of the CZK was short-lived, however. We currently have our EURCZK forecast under revision, given the persistent weakness of the koruna. However, as the CNB's approach indicates that, in the event of a calmer international setup, the bank board could incline towards tightening, we continue to believe that the CZK should strengthen from current levels.

CEE rates and yields:

Yields did not move much last week, and rates also showed minor changes. Tension was high on the Romanian bond market, however, waiting for how successful bond auctions will be after the rejection of all bids at three consecutive bond auctions amid low demand. While demand did not really skyrocket, 2024 and 2029 bonds were sold as planned, concluding September with five completed and three rejected auctions by Romania. The political situation remains turbulent, with the chances of a no-confidence motion being successful or failing quite similar. A presidential election is also slowly approaching, while the budget is also very generous for next year, making it next to impossible to keep the deficit in check in the absence of some corrective measures for 2020. While parliamentary elections are also looming in Poland, the only real question is the margin of victory for the currently governing PiS party, leaving investors in a more comfortable mood as far as bonds are concerned. As for Serbia, the central bank again had to resort to interventions on the RSD market in clear evidence of the intensifying pressure on the dinar towards appreciation. If tensions continue to mount, risks of another monetary easing (already at the next meeting, due in two weeks) would increase.

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