EUR/PLN Expected To Test 4.30 After Positive News On EU Aid, NBP Turmoil Under Scrutiny

A confirmation that Poland will be able to tap up to EUR137bn in EU aid (more than initially expected) put a bid into the zloty on Friday, even as the decision was leaked to the local press earlier in the morning, which we covered in our daily summary of local news. The European Commission is expected to formally unfreeze the money this week, with progress on that front closely monitored by the markets.

• EUR/PLN tested a layer of support just above the 4.30 figure in reaction to EU aid headlines. Local desks flagged potential for further zloty appreciation this week. Santander write that EUR/PLN could move towards 4.20 in the coming months, thanks to the unfreezing of EU aid, expected gains for EUR/USD and stable NBP rates. ING expect EUR/PLN to test 4.30 this week, citing technical signals and positive EM FX performance, with the pair likely to attack the 4.25-4.20 area in mid-2024. According to Pekao, conditions are ripe for a breach of 4.30 ("if not now, then when?"). Meanwhile, Millennium Bank write that EUR/PLN will this week "fight for a move below 4.30."
• For now, however, EUR/PLN has ticked away from Feb 23/26 lows (4.3047) and last deals +27 pips at 4.3127. A clean break below 4.30 would allow bears to take aim at Dec 13 low of 4.2935. Conversely, a move through Feb 7 high of 4.3564 could revive bullish technical sentiment.
• POLGB yields are slightly lower across the curve, despite firmer Bunds & CZGBs. The news about EU aid might be aiding local FI space, with tomorrow's auction set to test market sentiment towards Polish debt.
• MPC's Kotecki told Newsweek that rate cuts should be deferred until core inflation permanently approaches +2.5% Y/Y and refused to take rate hikes off the table. His colleague Henryk Wnorowski said that a "wait-and-see" approach would be most appropriate now, but the NBP could reduce rates towards the end of the year. These latest comments come as plans to put the NBP Governor on trial take shape.