We published an article yesterday on looking to buy the USD/PLN on strength but it's fallen hard today but has come back from major support and in our view, represents a low risk buying opportunity with significant upside potential.

The USD has seen a volatile sell-off to the downside across the board but the PLN has shown really good strength its an emerging market high BETA currency and in big moves they tend to be more volatile to the upside or to the downside than the majors.

Our view of the fundamentals is the same as yesterday:

Rate Differentials

The USD is now oversold with a rate cut largely priced in for September then another one following on in November – we do not see this perception in terms of yields getting any worse for the USD.

Eurozone and EUR Impact on the Zloty

The EUR has moved to the upside and so have all euro proxies but the euro rally looks limp – While the market is focused on a dovish Fed they see a hawkish ECB which we dont think is warranted based upon the economic data coming out of the zone. The market sees one or possibly two cuts, we expect three based on the slowing economy and inflation – The economy is slowing while inflation is falling which allows the ECB to cut rates. Only a break above 1.0900 changes our bearish view - If the euro goes down we expect the PLN to go down at a quicker rate.

Poland and the Ukraine Conflict

We see a possibility of Poland getting involved in the Ukraine conflict and if they do get into a conflict with Russia the Zolty will get hit hard. We outlined in brief in yesterday's article why escalation is possible and we have below linked to an interesting article that outlines how serious the standoff between Poland and Russia Click Here to Read the Article

Most traders dont think the conflict scenario will unfold maybe it won't but the USD will go up anyway in our view and if we do get escalation the USD will get a huge push to the upside.

Technical analysis - One of Our Favorite Technical Setups

in terms of technicals, the setup below is one of our favorites – we have the USD oversold and bouncing from major support while at the same time, speculators are heavily short and bearish which skews the risk to reward – We see low-risk in this pair and high-profit potential. The key levels of support and resistance to look out for on the chart below.