Zloty to go through a lot. Forecast as of 16.01.2024

A political crisis broke out in Poland. The Law and Justice party, which lost the elections, does not want to give up power, leading people to rallies. Access to €60 billion in European Union funding is in question. Let us discuss the Forex outlook and make up a trading plan for USDPLN.


Monthly Polish zloty fundamental forecast

Who said it would be an easy ride? This was the question that Polish Prime Minister Donald Tusk addressed to the electorate after President Andrzej Duda vetoed the government's intention to prosecute the top prosecutor. Before this, Duda prevented the transfer of power from the Law and Justice party, sheltered fugitive members of parliament, and did many things that contributed to mass opposition protests in Warsaw. A real political crisis broke out in Poland, which led to USDPLN growth.

Following the victory of Donald Tusk's party in October, the zloty strengthened by 9% against the US dollar, the 10-year bond yield fell by 75 bps, and the WIG 20 stock index rose by around 14%. Foreign investors actively bought Polish assets on expectations that the loss of the Law and Justice party would help unlock €60 billion in EU aid due to the pandemic.

Dynamics of world and Polish stock indices

Source: Bloomberg.

Members of the Law and Justice party are saying that Donald Tusk is trying to destroy Poland and become a vassal of Germany, and the prime minister continues fighting with the president and the courts loyal to the old government. The situation is actively getting worse. If Tusk doesn’t work out, the October-December rally in Polish assets could be repeated. Judging by the changes in the USDPLN pair, the process has already begun.

The situation is aggravated by a revision of market views on the monetary expansion of the Federal Reserve and other central banks. Investors expected a serious monetary easing from the 20 largest central banks. Now, they are beginning to doubt it. So, after data on American CPI for December, Bank of America recommended that its clients sell assets of emerging countries.

Dynamics of rates and forecasts

Source: Financial Times.

The zloty is also on this list. The currency became the second-best performer of 2023 on Forex after the Mexican peso amid rising global risk appetite and Tusk's party's victory in parliamentary elections. Now, PLN is going through a difficult period.

The growth of USDPLN is hampered by the hawkish stance of the Narodowy Bank Polski. At the January meeting, NBP officials kept the key interest rate at 5.75% and said it could go up or down. Everything will depend on inflation, which can either drop from 7.3% to 2.5% or rise to 8%. As a result, the derivatives market lowered expectations for the scale of monetary expansion from 125 to 100 bps, which is less than the Fed.

Monthly USDPLN trading plan

In my opinion, Donald Tusk will go through a lot, but in the end, he will succeed. It won't be easy at first, so enter short-term USDPLN purchases toward 4.055 and 4.09-4.11, followed by a price rebound from these resistances and switching to medium-term short trades.

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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