EURUSD broke support near 1.1570
The weakening of the zloty was due to global factors, among which the increase in risk aversion since the end of last week and the strengthening of the US dollar were the main ones. The above-mentioned factors were a result of growing market expectations of a Fed rate hike, after strong monthly data from the US labor market, and partially linked to the realization of gains on the NYSE.
Additionally, the market is not helped and probably will not be helped (at least at the beginning of the current week) by a renewed escalation of tensions in the Middle East, where after the weekend rocket warning between Iran and Israel the durability of the ceasefire since early April seems doubtful.
As a result of the above factors, the EURUSD rate broke support near 1.1570, and USDPLN reached a key technical resistance at 3.68.
Interestingly, the reaction of EURPLN to the negative environment for risk assets was limited, and the rate remained within the consolidation range (4.22–4.26) building since April 20.
Dollar rate – forecast for the coming days
This week the zloty will continue to be mainly influenced by global trends, which will shape market expectations regarding the Fed rate path and the further dynamics of the Middle East conflict and related oil prices.
In our opinion, both the environment and changes in the short‑term EURUSD trend indicate that the risk‑off mode and dollar appreciation will continue at least at the beginning of the week.
USD/PLN dollar approaching 3.74?
In such an environment we see a risk of USDPLN breaking above 3.68, which, if realized, would open the path toward 3.74.
For EURPLN we assume a continued sideways trend, although testing the 4.25–4.26 zone is, in our opinion, highly likely.
Interest rate market
Since the beginning of June, yields on Polish bonds have risen by about 12–23 basis points, exceeding 4.5% in the 2‑year sector and reaching 5.80% in the 10‑year sector. The downturn in sentiment at the beginning of the week was caused by rising global oil prices, which increased the risk of rate hikes by major central banks.
On Friday an additional pro‑growth impulse was the release of monthly US labor market data. The data turned out better than expected both in terms of the current reading and the April revision, sparking a sharp rise in US Treasury yields by almost 10 basis points. Finally, on Friday 10‑year US Treasury yields rose to 4.54%. Following the changes in the UST market, Polish bonds also weakened, though to a lesser extent.
In the coming days, in our opinion, a reaction on the domestic debt market is likely. We expect 2‑year yields to fall below 4.45% and 10‑year yields below 5.7%. Domestic securities should be supported by easing RPP rhetoric, solid demand from domestic financial institutions, and a short‑term lack of new supply on the primary market.
Improvement in sentiment may, however, occur gradually due to negative signals from the major markets. In the context of short‑term trends, a key event will be the mid‑week release of US inflation data. The market expects the index to rise to 4.2% YoY in May from 3.8% in April.
Increasing price pressure in the coming days may strengthen speculation about potential Fed rate hikes. Additionally, in Europe higher bond yields may be driven by the rate hike forecast we have for the ECB.
