EURPLN remains in consolidation between 4.22 and 4.26
The increase in geopolitical tension in the Persian Gulf region, following what the U.S. side describes as defensive U.S. attacks on Iranian boats and missile launchers, has again raised the geopolitical premium in crude oil pricing, which translated into higher oil prices. This factor slightly strengthened the dollar, and the U.S. currency was also helped by a higher-than-expected consumer sentiment reading from the U.S. according to the Conference Board. Ultimately, however, the FX market reaction to the most serious military incident in recent weeks between the U.S. and Iran was surprisingly muted. The fact is that this event did not lead to the closure of diplomatic channels, and talks about an agreement between the U.S. and Iran are still ongoing.
Thus, investors assume that at least a temporary agreement is within reach and position themselves accordingly. Small shifts in the rates of the aforementioned pairs did not change the picture of their trends: EURPLN remains in consolidation between support at 4.22 and resistance at 4.26, USDPLN bounces off a significant short-term support zone 3.6250-3.6350, while EURUSD is in a range between support at 1.1570 and the nearest resistance at 1.1670.
Euro rate - forecast for the coming days
The Wednesday macro calendar does not contain figures that could influence market sentiment, so the topic of the negotiated peace agreement between the U.S. and Iran, whose signing, as U.S. Secretary of State Marco Rubio indicated, is a matter of a few days, will remain the focus of investors.
The expectation of this agreement, assuming no military escalation, will, in our opinion, on Wednesday favor the stabilization of EURPLN and USDPLN rates respectively in the 4.23-4.25 and 3.6250-3.66 zones.
Bonds, Middle East conflict and macro calendar
On Tuesday, domestic Polish government bond yields ranged from 0 to +2 basis points. In the 10-year segment, yields remained around 5.78%, while on base markets, German Bund yields rose by 3 basis points to 2.98%, and U.S. Treasuries fell by 8 basis points to 4.49%.
For many weeks it has been difficult to analyze the behavior of the interest rate market without taking into account the details of the situation in the Middle East. The complexity of the conflict — at the intersection of U.S., Iran, Israel, and Gulf states interests — and the unpredictable communication style of U.S. President D. Trump lead to frequent changes in sentiment and make it difficult for markets to assess the further course of events. Even on Monday, media reports and statements from the parties involved suggested the possibility of a breakthrough toward de-escalation. The improving sentiment was accompanied by a drop in oil prices, which also supported the debt market and contributed to falling yields.
Once again, however, the wave of optimism was quickly disrupted. Information about new U.S. military actions against Iran again increased investors’ caution, halting downward movement of yields in the domestic and European FI markets. The drops in U.S. Treasury yields seen on Tuesday should mainly be interpreted as a delayed reaction to a weekend downward impulse that the U.S. market could not discount earlier due to the Monday holiday in the U.S.
On Wednesday, with a limited macroeconomic data calendar, investors will remain in a waiting mode for new reports from the Middle East. For continued yield declines, more credible signals of progress toward de-escalation after Tuesday’s signs of weakening peace momentum are necessary.
