Citigroup's currency strategists said Wednesday they have taken profits on a long position in the Hungarian forint against the Czech koruna, a trade that had been implemented using forwards.
In a note, strategists Luis Costa and Bhumika Gupta reported the bank booked a 1.3% total return on the position since it was introduced on April 27. The pair also emphasised that their longer-term assessment of the forint remains constructive.
"We maintain a positive view on the forint, especially if this ease in international energy prices holds in the short- and medium term," the strategists wrote.
Alongside the profit-taking on the HUF/CZK forward, Citi said it is similarly closing part of a position on a forward curve trade: the 2-year, 2-year forward Hungarian forint receiver versus the euro 2-year, 2-year forward.
Despite trimming exposure, Citi indicated that the currency could still have room to appreciate under favorable conditions. The bank suggested that the EUR/HUF exchange rate could move below the 350 level if those conditions prevail.
Another factor Citi flagged as having the potential to stimulate renewed strength in forint assets is political and fiscal progress in Hungary. The strategists noted that successful steps by the incoming Tisza government to regain access to European Union funds by the August deadline may act as a catalyst for another rally in forint positions.
The decision to crystallise gains while restating a positive view underscores a preference for de-risking after a modest return, while keeping the door open for further appreciation should energy price dynamics and developments around EU funding evolve as outlined by the bank.
Market implications: The moves touch on several market segments, including bilateral FX markets between Central European currencies, short-dated forward curves linked to sovereign and currency risk, and the performance of Hungarian assets sensitive to EU funding flows.