It would be an understatement to say that most traders were hyper-focused on developments out of the Eurozone today. Despite persistently low inflation figures, the European Central Bank refrained from introducing any new stimulus in its monthly meeting earlier today, though ECB President Mario Draghi did strike a slightly more dovish tone. While the impact of the ECB’s (non)action on the EUR/USD has already been discussed ad infinitum, a number of other emerging European currencies are seeing some “pin action” in the wake of Draghi’s deliberations.
One pair that appears primed for a major breakout is the USD/PLN. Of course, Poland’s economy is heavily dependent on the Eurozone, with nearly 50% of its exports going to the region; not surprisingly, the Polish zloty has followed the euro lower today, falling to 1-week lows against the US dollar and taking it up to test its upper trend line.
In fact, the pair has been putting in lower highs and higher lows for over a month now, creating a prototypical symmetrical triangle pattern. This pattern is analogous to a person compressing a coiled spring: as the range continues to contract, energy builds up within the spring. When one of the pressure points is eventually removed, the spring will explode in that direction. In addition to the symmetrical triangle in price, the RSI has also been putting in higher lows and lower highs – a breakout in this indicator could lead or confirm a breakout in price itself.
It’s difficult to anticipate which direction this pattern will break out in advance, but we can anticipate a strong continuation when it does. Therefore, a bullish breakout could quickly target the confluence of the 100-day MA and 38.2% Fibonacci retracement in the 3.0550-3.0625 zone, followed by the 61.8% Fib retracement at 3.10; this is also near the measured move projection of 720 pips from the breakout level. On the other hand, a bearish breakdown would expose the psychologically significant 3.00 level, followed by the 2.5-year lows at 2.9860 next.
Tomorrow’s Non-Farm Payroll report is the proverbial “elephant in the room” (see our full NFP preview) and could provide the ideal catalyst for a breakout in USD/PLN. While other traders will be focusing on NFP’s impact on the major pairs like EUR/USD, readers may want to focus on the potential for a breakout in the euro’s neighbor to the east!
Source: FOREX.com
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