Time to short the Polish Zloty
Updated
The idea is very simple... Despite it having a significantly higher interest rate than the US, capital isn't flowing in the country. Poland is in a very tough place right now, as it has a relatively small economy and doesn't have a currency that is widely used. Europe overall is a big mess, and the PLN is affected by the EUR too. The ECB still has rates at -0.5% and Poland has rates at 6%, yet EURPLN is near its ATHs. In the charts below you can see how bad EURUSD looks, which I think will go below 1.03 to sweep the lows and then maybe bounce for a while, and how EURPLN might have formed a massive top. Therefore it might be a better idea to short EURUSD than going long USDPLN (short PLNUSD), as it will have a lower carry.
Yet the structure of USDPLN is much cleaner, and a breakout could be massive. I definitely expect to see the USDPLN highs swept, then a pullback and then continuation higher. This consolidation looks very bullish, and a breakout would potentially lead to a major expansion over time. The main fundamentals behind this is that Poland can't sustain such high rates with such high energy prices as the economy will collapse, and at the same time it does look like Poland would be one of the next countries that Russia will attack. Unfortunately it feels like a matter of time until Russia fully conquers Ukraine, something that will hurt Poland very badly due to its ties with Ukraine, and then it feels like a matter of time until they begin their next war.
Yet the structure of USDPLN is much cleaner, and a breakout could be massive. I definitely expect to see the USDPLN highs swept, then a pullback and then continuation higher. This consolidation looks very bullish, and a breakout would potentially lead to a major expansion over time. The main fundamentals behind this is that Poland can't sustain such high rates with such high energy prices as the economy will collapse, and at the same time it does look like Poland would be one of the next countries that Russia will attack. Unfortunately it feels like a matter of time until Russia fully conquers Ukraine, something that will hurt Poland very badly due to its ties with Ukraine, and then it feels like a matter of time until they begin their next war.
Trade closed: target reached
USDPLN behaved as expected, and all targets got hit, but the recent drop has been somewhat unexpected.It's unclear to me whether the fears in Europe were overblown, the fact that Russia is losing the war is giving everyone much more confidence, or whether this situation will unite Europe and trigger an excellent fiscal response that Europe needs.
Of course, maybe the Fed's hikes haven't been enough, and some European central banks have hiked a lot, especially the Polish one. Perhaps the energy crisis is about to be behind us, and the Fed has reached its limit and is about to pivot. Either way, I am not as excited about the USD as I've been.
For many months I shared several ideas that were bullish on the USD, but I think we've reached a point where being very bullish on the USD doesn't make sense. We need to wait a bit and then re-evaluate.
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