Zloty goes back to Europe. Forecast as of 17.10.2023

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The defeat of the party in power in elections tends to shake financial markets. This time, it was a pleasant surprise for the Polish zloty. Investors believe in the bright future of the country and sell the USDPLN. Let’s talk about this topic and draw up a trading plan.

Weekly fundamental Polish zloty forecast

Poland is returning to Europe, with the zloty showing the best performance in October among all the most liquid currencies tracked by Bloomberg. During its 8 years in power, the Law and Justice party was so at odds with the EU that its defeat in the parliamentary elections lured investors back to the Polish currency. The capital inflow and the increased likelihood of unblocking a large-scale fiscal aid package amid a potential warming of relations between Warsaw and Brussels encouraged the USDPLN bears.

According to an Ipsos poll, the ruling party received 36.6% of the votes or 198 seats in the new parliament. The opposition has a total of 248, including the Civic Platform led by Donald Tusk — 31% of the vote. To form a government, 231 seats are required. The former prime minister and president of the European Council is likely to find a way to unlock the €35 billion aid package, which will accelerate Polish GDP growth. Access to these funds was blocked due to Law and Justice’s disagreements with the EU on a variety of issues, ranging from control of the courts and media to attacks on women’s rights.

According to Goldman Sachs, after the opposition’s victory, the central bank’s position will become more hawkish. The derivatives market reduced the likelihood of further easing of monetary policy by 13 basis points. The main interest rate fell to 5.75% at the last two meetings, in September and October, as inflation slowed for seven months in a row to 8.2%. However, its sharp decline in conditions of still very high prices was perceived as a sign of help from the President of the National Bank of Poland, Adam Glapiński, to the party in power.

Dynamics of NBP interest rate and Poland’s inflation

 

Source: Bloomberg.

Nevertheless, there are still potential problems in Poland. The country’s President Andrzej Duda, loyal to Law and Justice, will certainly try to give the party in power the right to form a government based on the principle of majority vote. He is unlikely to succeed, but this man will hinder Donald Tusk’s activity until the 2025 presidential elections.

In my opinion, investors are too carried away by the idea of Poland going back to the European Union. In fact, a new opposition government has yet to be formed, let alone unblocking a €35 billion aid package and a more hawkish central bank. The USDPLN trend could turn down only provided that the EURUSD trend reverses. Otherwise, a serious strengthening of the zloty against the euro will press down Polish exports.

Weekly USDPLN trading plan

Optimism is good, but premature optimism can lead to serious disappointment. The USDPLN drop is rather a correction. It will be relevant to buy if the price rebounds up from supports at 4.177 – 4.182 or goes above the resistance zone of  4.242 – 4.246.

Price chart of USDPLN in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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