PLN, like many other markets, has moved sideways in recent weeks. Last week has already signaled that the market will move to correction. The franc sellers managed to leave a long, negative candle on the weekly chart, and the market left the range of almost 2-month fluctuations. So we move to correction and it’s time to look at what levels the franc in relation to PLN has a real chance of weakening.
The key factor that currently strengthens the PLN is further improvement of investment sentiment in the equity markets, which also initiate the abandonment of several weeks of consolidation after the considerable upward movements that appeared earlier. In the case of CHF / PLN, which is closely monitored in Poland by many CHF mortgage holders, changes in market sentiment are quite significant, as both currencies that make up this pair are strongly exposed to mood swings. When sentiment worsens, global capital goes to the franc and the dollar, escaping from higher-risk currencies, and thus emerging markets (including PLN). If the investment sentiment improves, it’s the opposite.
The PLN strengthening movement now started has a chance to bring the market to at least the closest support level that I would set here at around 4.1850. These are highs from 2016, where you will also find the level of equality of corrections (yellow rectangles on the chart). If the wave of improving sentiment in the markets is even stronger, the next area where you can look for opportunities to buy is around 4.04-4.05. We will find here the highs area from August and September last year (support that was previously a resistance) and 38.2% retracement of the entire growth wave from 2018.
Why use this correction to buy?
Opening up the economy after the recent lockdown should improve sentiment in the markets in the coming months. Remember, however, that in the autumn investors face new risks. They may be afraid of a resumption of the pandemic (previously discounting this scenario), and thus another shutdown of the economy. After recent experience, many behaviors and procedures are ready, so it can be assumed that the whole process would run more efficiently this time. This does not change the fact that the resumption of the pandemic is not yet included in prices and can certainly mean another large risk off in the markets.
The second issue is the presidential election in the US scheduled for November 3. Trump will do everything to re-election. It can therefore be assumed that, in cooperation with the government and the Fed, printing and pumping dollars into both the financial markets and the street will be at full power. It remains an open question what will happen after a possible win, or whether large interest groups decide to get rid of the independent president (too rich to succumb to pressure), initiating gigantic declines on Wall Street a few weeks before the election and thus lowering Trump’s chances of re-election. It is also not known how the US-China relations on Hong Kong will develop, but Trump, at his own request, will rather not do anything that could permanently damage markets and sentiment. Not for elections.
Therefore, since it can be assumed that more serious turbulences are likely to await us in the fall, the current strengthening of PLN should be interpreted as a correction, and thus an opportunity to increase the share of safe currencies (CHF, but also USD) in the portfolio. Therefore, it is worth keeping in mind the levels mentioned, i.e. 4.1850 and below 4.04-4.05 (when buying in parts). The appearance of a positive buyer response there may be a signal that the market has also noticed these levels and is starting to buy.
