The PLN market - Weekly overview

The Polish market has become a really interesting place to trade. The stock market is making up the lost time and is heading up trying to catch up with global indices. Also, not only external factors impact the movements of the PLN, but also news from the local economy. Sure, Janet Yellen’s speech in front of Congress was a trigger for a major USD appreciation. Who would have expected that Yellen will be so hawkish?  The Polish Zloty lost ground against the USD, but it already has returned to the previous levels. So what is going on in the local economy? The market was surprised with the better than expected reading of the fourth quarter’s GDP reading. The economy grew  by 2.7% (yeary basis) and this number surpassed forecasts of 2.5%.This means that the 2016 growth reached 2.8%, which is a pretty decent number. We have to keep in mind though, that this score was reached by increasing inventories and some consumption. Investments declined dramatically and this component of GDP needs to be closely watched. Inflation is back with a CPI reading of 1.8% in January (yearly basis). Also, average wages grew by 4.3% in January (also y/y) which was higher than expectations.

If we look at the big picture it seems the economy is speeding up and that inflation might be a danger soon. MPC member, Kamil Zubilewicz, does not exclude interest rates hikes this year. He believes that there is risk that inflation will exceed the reference interest rate, impacting savings in a negative way. Well, all that is true but in order for the inflation to speed up, the forecasted GDP growth of 3.6% should materialize. Is that possible? Tough call. I would expect shooting for a 3% growth. By the end of the week though, we got a strong industrial production report showing an increase of 9% in January (y/y). Additionally, retail sales in the same month increased by 11.4%. Both readings exceeded forecasts.

Let’s look at some charts now. After reaching a 5-month low of 4.27, the EUR/PLN has rebounded. As we see on the daily chart, the correction has reached 4.33, the 50% retracement level of this year’s downward move. If the EUR/PLN breaks this resistance when the market closes on friday, the next target for the market will be 4.35. On the other hand, the stochastic oscillator is showing the market is overbought and that we should expect a downward move. If so, trader could target the 4.30 level.

Pic.1 EURPLN-ECN D1 Source: MT4 Supreme Edition, Admiral Markets

The USD/PLN is usually more volatile than the EUR/PLN. On the daily chart below we see that, the correlation between those two is strongly positive. Still, the movements of the USD/PLN give traders more chances to get into a position. The USD/PLN also rebounded from this year’s lows of 3.97 and currently is being traded above 4.05. If the market breaks the 4.08 resistance (50% retracement level of this year’s downward move) the next target should be 4.10. On the other hand, bears are looking for the USD/PLN to retreat to the 4.03 area.

Pic.2 USDPLN-ECN D1 Source: MT4 Supreme Edition, Admiral Markets