EURHUF: USDHUF Extends Sharp Pullback Following Tabled German Fiscal Reform
The euro has surged alongside European equities after Friedrich Merz said yesterday night that Germany would amend the constitution to exempt defense and security outlays from limits on fiscal spending, while also planning a €500 billion infrastructure fund. That has helped EURUSD extend the bounce from Monday’s low to 3%, with the pair nearing on the 1.07 mark. Meanwhile, European equities have sharply reversed the bulk of yesterday’s losses, dragging the Budapest Stock Index 2% higher and highlighting the sensitivity of Hungarian assets to German growth prospects.
- The sharp moves have allowed the Hungarian forint to reach fresh cycle highs against both the single currency and the greenback. EURHUF is 0.25% lower on the session, just above 398.00, while USDHUF is now over 5% lower compared to Friday’s high. The pair is trading at its lowest since October 25, with the sell-off tipping the 14-day RSI to its lowest since May last year.
- While uncertainty over US tariff policy and the war in Ukraine remain key risks to the high-beta forint, prudent commentary from the new NBH chief yesterday suggests that a hawkish policy mix will continue to provide support from a rates perspective.
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GILTS: Goldman Recommend 10s30s Flatteners
Goldman Sachs write “given that the current macro data continues to provide support for Gilts by a lower path for underlying inflation, a weakening labour market and gradual BoE cuts (including at its meeting this week), backstopped by the potential for further fiscal adjustment if needed, we remain positive on gilts and expect further reductions in long-end term premium.”
- They think “10s30s has lagged the rally in UK rates, and recommend 10s30s flatteners.”
SILVER TECHS: Holding On To The Bulk Of Its Recent Gains
- RES 4: $34.903 - High Oct 23 and the bull trigger
- RES 3: $33.125 - High Nov 1
- RES 2: $32.338 - High Dec 12 and a key resistance
- RES 1: $31.737 - High Jan 30
- PRICE: $31.248 @ 08:23 GMT Feb 3
- SUP 1: $29.704/28.748 - Low Jan 27 / Low Dec 19 and bear trigger
- SUP 2: $28.446 - 76.4% retracement of the Aug 8 - Oct 23 bull cycle
- SUP 3: $27.686 - Low Sep 6
- SUP 4: $26.451 - Low Aug 8
Silver traded higher last week. A bear cycle that started on Oct 23 last year remains in play and recent gains are considered corrective. However, the latest move higher does suggest scope for a continuation near-term. An extension would expose key resistance at $32.338, the Dec 12 high. Clearance of this level would highlight a reversal. Support to watch is $29.704, the Jan 27 low, and $28.748, the Dec 19 low and the bear trigger.
SPAIN DATA: Jan Manuf PMI Notably Weaker Than Consensus, Price Rises Noted
The Spanish manufacturing PMI was notably weaker than consensus at 50.9 (vs 53.5 cons, 53.3 prior). While still in expansionary territory for the 12th consecutive month, this was the lowest reading since August.
- Uncertainty weighed on demand, especially in export markets, while there was an uptick in input cost and output charge inflation.
- Note that Eurozone flash PMI did note that the pace of growth in the region ex-France and Germany did slow from December.
Highlights from the release:
- “Although demand was reported to have remained positive, some panellists noted a degree of uncertainty amongst clients. This was especially evident in export markets, with foreign sales rising only marginally since December”.
- “Whilst some panellists reported stronger demand from North Africa, there were reports of weaker sales to key European and Latin American markets.”
- “Reflective of slower output and order book gains, panellists reduced their purchasing and employment growth in January”
- “Input price inflation picked up noticeably”… “Inputs like steel were said to have risen in price, whilst higher transport expenses added to cost burdens”.
- “Firms chose to raise their own output charges quite markedly in January, and therefore signalled a return to rising factory gate prices following four months of decline”.
