Pressures Balanced In 2010

The Romanian leu has appreciated sharply in recent days and is currently testing key resistance at RON4.2000/EUR. On a purely technical basis, a decisive breach of this level would set up further gains towards the stronger end of its RON4.1200-4.3500/EUR trading band. We believe that appreciatory pressures have been building recently as a result of the looming presidential run-off election on December 6, which is hoped will see the formation of a new government and an end to a political crisis that has been in play since the beginning of October. More specifically, we believe that the market is pricing in the election of opposition candidate Mircea Geoana, who has gained ground in the opinion polls following the first round vote. Indeed Geoana's election would see the nomination of parliament's preferred prime minister candidate, Klaus Johannis, which in turn will see an end to the legislative deadlock and would likely prove leu positive.

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