PLN: Zloty Extends Impressive Gains Raising Questions Re: Possible Overextension

The zloty keeps building on yesterday's gains, which resulted in a breach of the psychologically significant 4.25 figure, and tops the EMEA pile as we type. The latest bout of sales was preceded by the formation of a "death cross" earlier this month. The pair last deals at 4.2114, down 127 pips on the session, which turns bearish focus to Jan 14, 2020 low/round figure of 4.2036/00. On the flip side, a return above the 4.25 mark would allow bulls to target the 50-EMA (4.2734) in hope for a firmer rebound.

• Technically oriented market participants should be alert to signs of overextension amid the sharp sell-off in EUR/PLN over the past couple of days. The RSI (last at 28.4) has now moved into overbought territory, although it is to be seen whether this will remain the case on a closing basis. In addition, EUR/PLN operates below its lower Bollinger band (4.2278).
• The zloty remains supported by hawkish NBP rhetoric, which sets it apart from regional peers. However, the critical downswing in EUR/PLN yesterday coincided with a round of EUR/USD purchases, but the correlation between the two pairs broke down in afternoon trade. However, this morning has seen another synchronised move in EUR/USD and EUR/PLN.
• Domestically, monthly economic activity data for December painted a softer-than-expected picture of the economy. Wage growth decelerated to single digits, while a disappointing retail sales outturn confirmed that consumers retained a preference for allocating a larger share of their growing incomes towards savings.
• POLGBs trade on a firmer footing, across the curve, with yields last seen 1.9-2.5bp lower. The Finance Ministry held an auction for OK0127, PS0130, WZ0330 and DS1034 bonds, with a target size of PLN6bn-9bn. It sold PLN8.76bn worth of debt, attracting demand for PLN10.15bn.
• The WIG20's advance has been stopped by its 200-DMA yesterday and the index paused gains, shedding 0.3% today.