Adam Narczewski
Independent Analyst
The Polish Zloty is experiencing a very good week, gaining against major currencies throughout the whole week. For sure internal macro news were not the major influencer. The published CPI for September was “only” 2.2%. This was an increase from the previous month (1.8%) but much lower than expectations (3.6%). So the MPC might be right saying that we have been observing a spike in inflation and that its level will go back to normality. Then, the hike of interest rates will be postponed in time. The main reason EM currencies have been on the raise this past week, was the weakening USD. The FOMC minutes revealed that tightening monetary policy in the U.S might not be as quick as everybody is expecting. Sure, most FOMC members believe the Fed should hike interest rates in December, but the lack of inflationary pressure might extend in time. At this moment, it is hard to forecast if the tightening process will continue next year. News affected the USD immediately, and the greenback had to give up some of its gains. In turn, the PLN got a boost and kept appreciating. The yields on 10y treasury bonds dropped to 3.4%.
As we see on the daily chart, the EUR/PLN broke the crucial 4.29 support and continued its way down to reach the 4.26 level. This support is strong and it seems it can hold. The stochastic oscillator shows the market is oversold and that we should expect an upward move. If so, the first target will be 4.27 and the next 4.29 (again). Breaking the 4.26 support should trigger a downward move toward 4.24.
Pic.1 EURPLN-ECN D1 Source: MT4 Supreme Edition, Admiral Markets
The weakness of the U.S dollar can be seen on the weekly USD/PLN chart. After approaching the 3.70 resistance, further upward move was denied. The corrective movement brought back the market to 3.60. If the USD/PLN ends up the week below that level, the 3.57 support could be tested next week. A rebound is possible with 3.64 being the first target.
Pic.2 USDPLN-ECN W1 Source: MT4 Supreme Edition, Admiral Markets
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