The end of the holiday season leaves vacationers this year with clearly thinner wallets. While fears of the global economic slowdown / recession and hence oil price pullback helped somewhat at fuel price levels, expensive currencies stayed with us throughout the summer.

The strong dollar dealt the cards

If we look for the “guilty”, we were definitely weighed down by the strong dollar, which is largely the result of maintaining the hawkish rhetoric of the Fed, which, as we know, tries to fight inflation within its capabilities. It is the expensive dollar that is usually a big problem both for emerging markets (Poland is still regarded as such by international capital) and their currencies. The expensive dollar usually weighs down on raw materials and precious metals as well.

Above is the weekly chart of the dollar index, which in recent days has returned to its recent highs in July. In the context of the zloty or the metals market, we are interested in ending the movement conducted since the beginning of 2021. So far, the demand is still doing well, and all subsequent lows are positioned higher and higher, which defines the uptrend. From the technical perspective, the key level for the dollar index will now be around 104.70, i.e. the place where the green bar is on the chart above. This is the next important weekly support. Only when it breaks would be a signal that those who play for further appreciation of the USD are starting to lose ground, and those who are making good dollar gains are coming to the fore.

It is worth bearing in mind that the source of such a retreat may not necessarily be the Fed’s shift towards a looser monetary policy, but it may be due to some hawkish surprise from the European Central Bank, which is also struggling with solid inflationary pressures in the euro area. And the euro is 57% of the dollar, so the impact should be visible soon.

USD / PLN – PLN 4.50 for observation

In the above weekly USD / PLN chart, support is found in the area of ​​PLN 4.50. Its loss would signal that the period of weak zloty is turning, if not into a more serious turn, then at least into a mid-term correction.

Expensive Euro but less volatility

The lower volatility of the euro customarily arouses slightly less emotions. This does not mean, however, that the last holiday weeks were cheap. In the long term, the area around 4.70-4.80 is still relatively high, which was felt while traveling around European countries this summer. Technically, on the other hand, the 2.5-year uptrend line, which can now be found in the area of ​​PLN 4.60, may draw attention here. Its decisive breakdown would increase the chances of a correction scenario materializing.

Frank is a refuge from risk aversion

The Swiss currency, which is of interest in our market, for example due to the still binding mortgage loans denominated in it, is usually a response to the global level of risk aversion. Apart from the dollar, it is in the franc that capital is willing to protect itself during market turbulences. At the same time, it avoids risky currencies, i.e. gold. The resultant for the chart of the CHF / PLN pair is a clear, northern direction in such conditions. In order to talk about a change in the trend in this case, the supply side would have to break at least the area of ​​the over 4-year upward line, which can now be found in the area of ​​PLN 4.35. As you can see, there is still a lot of spare to it.

The zloty remains focused not only on local, geographic risks or the MPC’s monetary policy, but also on the dollar index. And it is there that, to a large extent, one will be able to look for some relief for the domestic currency. On the other hand, the question of which side will be the chance for a return remains open, i.e. whether to look for a “pause” in the performance of the Fed, related to the deteriorating macro data, or more decisive, hawkish moves by the ECB. The next opportunity to find out is on September 8. It is then that a decision will be made whether interest rates in the euro zone will be raised by the forecasted 50bp or maybe more.

Tomasz Gessner