Zloty Goes Offered, EUR/PLN Tests 20-EMA

Morning trade brought a firm rally in EUR/PLN despite the absence of any obvious local catalysts. Governor Glapinski and PM Morawiecki continued to flag potential for rate cuts this year, but this is consistent with their prior messaging. The rate last deals +281 pips at PLN4.5299.

• The upswing in EUR/PLN can be considered corrective at this point. However, the rate briefly pierced its 20-EMA (PLN4.5371) flagged by our technical analyst as the initial firm resistance. A clean break above there, followed by a move through May 18 high (PLN4.5547) would suggest that there is potential for a stronger recovery. It is worth monitoring the RSI chart, where a short-term bullish failure swing seems to be crystallising. On the flip side, bears keep an eye on the PLN4.4784/67 support area.
• NBP Governor Adam Glapinski and PM Mateusz Morawiecki both said that they hope that rate cuts could become possible by the end of this year as inflation cools. Their comments came after MPC's Ireneusz Dabrowski suggested that he sees a chance for a November/December cut. Pekao wrote in their morning note that they agree with these remarks and expect a 25bp rate cut into the end of 2023. NBP's Ludwik Kotecki, member of the hawkish minority in the MPC, was sceptical about the prospect of quick disinflation, especially in the light of generous election pledges.
• POLGBs have lost appeal and are now slightly weaker, curve has steepened at the margin. Poland sold PLN7bn of bonds yesterday, at an auction which confirmed decent demand for floating-rate notes, with the Finance Ministry noting that it has financed 85% of its 2023 borrowing needs.