fundamental analysis FX
Such a rel ief was ver y shor t l ived. Extreme tens ion from Greece and more general ly from European peripher y once again star ted some contagion in the emerging Europe markets . But the real blow has been ver y recent : the new rul ing par ty voiced concerns about the current f i scal s i tuation blaming the previous government of having hidden the real (di sastrous)
s i tuation of
promi ses of f i scal largess . Sti l l , market reacted qui te badly wi th Eur/Huf los ing about 5% in a few sess ions to touch year highs at 290. Wi th Eurozone’s f inancial instabi l i ty being sti l l present , emerging Europe cannot cons ider i tsel f out of the woods . In par ticular Fidesz mani festo to pursue growth ahead of f i scal austeri ty could be in danger wi th ri sks of def lation
Chart 3. Eur/Huf swings.
economic variables and publ ic f i scal pos i tion. On the surface, ver y s imi larly to what caused the Greek s i tuation to spin out of control a few months ago. To some extent Fidesz declarations have l ikely been much more instrumental to domestic pol i tic tactics . A way to backtrack on electoral
looming in many Eurozone countries . The new government wi l l have to f ight not only the IMF atti tude (whose plan for Hungar y i s much more biased on f i scal consol idation) but al so the weakness of most of i ts expor t markets .
It i s ver y l ikely that some
conf l ict wi th the Centra l Bank wi l l ari se, wi th government looking at a weaker Flor int and lower interes t rates as the only feas ible ways to ref late the e conomy. The s i tuat ion g et s even more compl icated due to the par t icular nature of the pr ivate lending bus ines s in Hung ar y : 55% of tota l loans are denominated in foreign currencies . The Swi s s Franc plays a pr imar y role : 30% of a l l bank loans and 60% of a l l mor tg ag es are denominated in Chf . Foreign (pr imari ly pan-European) banks , di re ct ly or through thei r af f i l iates , account for a larg e share of tota l bank as set s in centra l European countr ies . A weaker Florint , and even more, a s trong Franc , could put more s tres s on the European banking sys tem wi th new wri te-downs looming for European and Swi s s lender s . As somebody put i t , “ke eping Swi s s Franc f rom ri s ing i s a lot more impor tant now to the hea l th of the Swi s s and EU- wide banking sys tem than i t i s for Rolex and Nes t lé”. In the end, as we can se e, Eurozone’s des t iny and the s tabi l i t y of i t s f inancia l sys tem i s going to be pivota l for g loba l market s , s tar t ing f rom some immediate neighbor s such as Swi tzerland or Hung ar y.
Alessandro Balsotti FX TRADER MAGAZINE July - September 2010 25
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