PLN weekly snapshot – Tough Week

Polish Zloty (EUR/PLN) - 4.50 in sight

It has been a tough week for the Zloty so far and the week has not ended yet. Macro publications were supposed to give a boost to the PLN. The industrial PMI increased to 51.9 points in November (from the previous 50.2 points). On the other hand, the main statistical office has confirmed that GDP growth for the third quarter of this year stood at only 2.2% (yearly basis), much worse than in the last year. This is not the reason though why the PLN is dramatically depreciating. The market might be fearing the upcoming (probably today) S&P rating agency decision about Polish debt. Currently, it stands at BBB+ (it was lowered at the beginning of the year) but the agency has signaled its negative outlook. Since then, the risks of fiscal policy have increased. Economic growth was lower than expected. Many of the political risks have already materialized but still there are many things that the agency takes into account. Traders do notice what is going on and the sell off of Polish bonds continued. Yields of 10 year government bonds  have reached almost 3.8% (while in January they stood at 2.8%). If S&P decides to lower the rating, the Zloty is set for a major depreciation. If the rating remains the same, we should observe a corrective movement. We will probably learn about the S&P’s decision after the trading session ends today.

As we see on the daily chart, the EUR/PLN bounced back from the 4.41 support level and continued its way up. It broke the 4.46 resistance level and it seems it can easily reach the crucial 4.50 level. If S&P decides to lower the Polish debt rating, the EUR/PLN will be inclined to attack this year’s highs of just above 4.53. The stochastic oscillator shows the market is heavily overbought and that there is a chance of a corrective movement. If so, the market will test the 4.46 support.

Pic.1 EUR/PLN D1, source: MetaTrader

Adam Narczewski, CFA, PRM