EUR/PLN Narrows Gap to Initial Resistance, Implied Vols Hit Fresh Cycle Lows

EURPLN (+0.4%) has narrowed the gap to the 50-day EMA at 4.3277 as the cross continues to recover from last week’s cycle lows. The cross closed just above the 4.3000 handle last week – a level which had been touted as a significant pivot point. But despite the latest recovery, spot gains of PLN versus the EUR still exceed that of most of the zloty’s regional peers on a YTD basis.

• 1w implied EURPLN vols slipped to 3.975% this morning, the lowest level since December 2021 (though have since recovered above the 4% mark). Meanwhile, 3m EURPLN risk reversals hit the lowest levels since February 2022 (triggered then by Russia's invasion of Ukraine), evidence of the fading vol premium for EURPLN calls over puts.
• JP Morgan wrote in a note over the weekend that as easing cycles progress and CE3 transitions from high positive carry to low carry, it is unavoidable that CE3 currencies will trend weaken. Indeed, they have taken profits on most of their CEE FX trade recommendations from the start of February (took profits on OW PLN, long PLNHUF and long EURCZK).
• NBP data showed core CPI rose 0.5% m/m in February, in-line with estimates and equating to a +5.4% y/y print. While further signs of core moderation will be welcome news to the NBP, sell-side had noted ahead of the release that much of the decline would be attributable to base effects, with upside momentum still likely to be at elevated levels.