EUR/PLN: Support area at 4.40 proves tough to clear – Rabobank

A coronavirus outbreak in the manufacturing hub of Upper Silesia beside political uncertainty are set to weigh on the zloty. Economists at Rabobank see the 4.40 to provide a solid support to the EUR/PLN pair.

Key quotes

“Upper Silesia has been the Polish coronavirus hot spot over the last few weeks and yet restrictions have been eased in the same way as in the rest of the country. Upper Silesia is one of the biggest manufacturing hubs in Poland. It is not only famous for its coal mines, but companies from all sectors are located in the region which generated 12.3% of the entire GDP in 2018. Re-imposing strict restrictions in Upper Silesia would be a major blow to the still fragile economy and the Polish zloty.” 

“It is also worth pointing out that Poland is in the middle of the presidential election campaign. President Duda and his main rival Trzaskowski are traveling across the country participating in packed rallies. Media are full of evidence that it is difficult to maintain social distancing when meeting with supporters.”

“The Polish zloty is likely to struggle to extend its gains beyond the 4.40 level versus the euro in the coming weeks if the market starts paying more attention to worrisome developments in Upper Silesia. Political uncertainty is another factor that may prevent the zloty from appreciating further in the short-term.”

“Despite a major improvement in global sentiment over the last few weeks we refuse to mark the 4.6342 level set in May as this year high for EUR/PLN just yet.”