The PLN market weekly overview - is democracy at risk in Poland?

We are experiencing turbulent times in Poland. Economical factors are not the ones that worry traders and citizens. Poland is in a situation in which it has not been since 1989. The ruling party, Law and Justice (Prawo i Sprawiedliwość) just passed three acts, that might be unconstitutional. Those three acts (about the Supreme Court, Common Courts and the National Judicial Council) basically give full power to the parliament (mainly the minister of justice) in choosing, laying off and deciding about which judges should be in the supreme court, regional courts or the national judicial council. In over 25 years, no ruling party (and we had leftist, rightist and center parties) has decided to make such regulations. No wonder, thousands of Poles are protesting on the streets (pictures of those one can see on international news services) demanding a veto from Andrzej Duda, the president of Poland. In a democratic country, things like that should not be happening. Is this only a political issue? No. If Duda signs the acts, we Poland should expect a strong reaction from the European Union. Rating agencies might lower Polish debt rating, which in turn will increase the cost of financing. So the effects on the economy will be felt.

Taking into account the current political situation, local macro data publications were not in the spotlight. It has to be noted though, that average wages increased by 6% in June (yearly basis, higher than expected) while industrial production climbed only 2.4% (much lower than forecasted). Will inflation grow as the government was expecting? Well, the PPI publication showed a reading of 1.8% in June (lower than expectation) while retail sales increased only by 6%. Tough to expect a hike of interest rates any time soon.

So far, the Polish Zloty is not reacting to the political problems in Poland. It seems the EUR/PLN is doomed to stay in the 4.20 - 4.24 trading range. This past week, after testing the support, it has rebounded from the lower bound. Tough to predict what is going to happen next. The political war that is taking place might certainly scare traders and capital might run away from PLN-denominated assets. In this case, the market will be targeting the upper bound of the range - 4.24. Breaking it, will open the way to 4.29. On the other hand, if the support is broken, the EUR/PLN will heading towards 4.16.

As for the USD/PLN, we see on the weekly chart that the market broke the strong support of 3.70 and is still heading south. The 3.60 level should hold the market for some time and maybe we will see a rebound. Still, it looks like the target for the USD/PLN could be 3.52 - that is where the range of each downward movement in 2017 could end.

Pic.2 USDPLN-ECN W1 Source: MT4 Supreme Edition, Admiral Markets