Zloty Snaps Six-Day Winning Streak, All Eyes On Election Matters

The recent EUR/PLN downleg coincided with a softening of US Tsy yields but may have been further supported by positioning ahead of this Sunday's parliamentary elections. There has been speculation that the increase in the perceived odds of a victory by the pro-EU opposition may have lent some support to the zloty, due to such coalition's ability to reopen negotiations with Brussels over the frozen funding, even as its legislative initiatives could be blocked by vetos from the hostile President.

• The pair is correcting its recent sell-off and last sits +77 pips at 4.5324, with bulls looking for gains towards Sep 12 high of 4.6971. On the flip side, bears keep an eye on the 61.8% retracement of the Jul 31 - Sep 12 rally at 4.5126, which limited losses yesterday.
• ING note that EUR/PLN approached important support levels around 4.52 yesterday and they see a significant risk of a continued move towards 4.50 before the weekend, especially if the greenback continues to soften, investors close long EUR/PLN positions ahead of Poland's parliamentary elections, while local data surprise to the upside. However, they see a risk of EUR/PLN recovering to 4.70 or above at the turn of the year, as Poland's policy mix is relatively expansive, political scenario analysis does not necessarily suggest the imminent unfreezing of EU recovery funds, while a recovery in domestic demand and a weak outlook for exports may stop the improvement in Poland's current account balance.
• Millennium Bank write that from a technical perspective, the six-day losing streak for EUR/PLN has raised the odds of an imminent correction. They think that EUR/PLN may enter a short-term horizontal trend around 4.52, but much will depend on the upcoming parliamentary elections.
• NBP's hawkish dissenter Ludwik Kotecki told Biznes24 that lowering rates by a cumulative full percentage point in September and October was a mistake as "lots of risks" keep lingering around the inflation outlook, while there is much uncertainty around fiscal policies of the incoming government.