PLN/EUR Appreciatory Pressures Limited For Now

On the back of renewed US dollar strength and risk aversion in recent days, PLN/EUR (a proxy for trade in EUR/US$) has returned to the weaker end of its appreciatory trend channel. The unit is currently testing major support at PLN4.2200/EUR, a level which will prove crucial for the short-term direction. Should the resurgence in the dollar sustain, with the Polish unit concomitantly breaching support, we would expect to see further depreciation in the immediate term. However, we would wait for a weak monthly close beyond PLN4.3000/EUR (the next key resistance level), before going outright bearish the zloty. While this is certainly a possibility, our core view is that the unit will remain largely range bound between PLN4.0500-4.2700/EUR in the short-term, with PLN4.0500 providing strong resistance on the upside.

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