We are USD/PLN bulls and see big upside against limited downside – Our view of the big fundamentals and key technical levels to look out for are outlined in the article below...
We like the look of this trade we have low risk and very high profit potential the majority of forecasters still remain bullish on the PLN but we think it will get hit hard in the New Year the good news is priced in and far lower prices in the Zolty are expected.
Interest Rates
“The National Bank of Poland kept its benchmark interest rate unchanged at 5.75% in December, which was the 13th consecutive meeting without a change, in line with market forecasts. The Lombard and deposit rates were also kept at 6.25% and 5.25%, respectively.” (TRADING ECONOMICS)
The PLN has a small yield advantage over the USD but we expect this to change with cuts going forward.
“The euro yield curve is pricing in a dovish pivot from the ECB due to deeper rate cuts in response to Trump’s expected protectionist policy. The NBP, meanwhile, is tightening its bias. We find it hard to believe that in such an environment, monetary policy easing will not happen at all in 2025.”( ING THINK)
The ECB is dovish and we expect the Central Bank of Poland to cut rates going forward in response to the slowing of the EU its big trading partner. If the EU economy slows which it is and will continue to do so then the Polish economy with its big exposure to the zone will also slow leaving the door open for rate cuts.
What about inflation? It still remains high but it is moderating...
If interest rates are not cut the market is expecting this so wont give the zloty a boost. We of course expect cuts as the economy will slow and we have the threat of tariffs on Europe as well which will see interest rates come down.
The Economy
The economy will probably expand by about 3% for 2024 but this will all change in the New Year. We are already seeing weak consumption, industrial production is slowing and we have a decline in private investment. For the Economy in Poland to continue to grow the EU needs to grow but it won't and could face recession.
In terms of manufacturing and industrial production we are about to see a big slow up...
Trump tariffs could hit the EU and the auto industry is on Trump's radar – Tariffs on the EU will spill over to hurt companies in Poland.
The “Wildcard” Russia-Ukraine Conflict
Poland has been a big supporter of Ukraine but with Russia winning will they step into the conflict? We are now seeing Russia continue to advance in the East and tensions between the West and Russia are high – If the Russians continue to advance what will NATO do? Could we get Nato Troops on the ground? Could Russia hit military bases in Poland and Romania in response to attacks on Russia?
If we do watch the USD explode to the upside but even if we dont the USD has far more upside against the PLN.
Technical Analysis
We see plenty of upside potential in USD/PLN and you can see on the charts below the key levels of support and resistance to look out for in terms of getting long the USD on both the daily and monthly charts.
