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The pace of infections is likely to accelerate in the near-term which may force the Polish government to take measures that would have negative implications for the economy. Economists at Rabobank see limited scope for a further retracement in EUR/PLN and forecast a rebound to 4.44.

Key quotes

“It is important to point out that EUR/PLN moves in the opposite direction to EUR/USD, which remains in a bullish momentum. However, the EUR rally does look stretched and when it finally runs out of steam, the downside pressure on EUR/PLN is likely to ease accordingly.”

“A potential correction lower in EUR/USD could coincide with the Polish government announcing domestic restrictions to flatten the coronanvirus curve.” 

“The crucial support area at 4.40/38 may prove tough to clear if the market starts pricing in a much higher probability that the government will have to respond by reimposing restrictions. The scale of those restrictions will then determine to what extent the pace of recovery in economic activity may slow down and weather the odds are shifting more in favour of a U-shaped rather a V-shaped GDP growth in the coming quarters.”

“Essentially, EUR/PLN faces the risk of a squeeze higher in the coming weeks. A rebound above the 4.44 pivot would modestly be positive for EUR/PLN. The 4.52/51 resistance area would have to be cleared to adopt a constructive view on EUR/PLN, but for that the outlook for Poland would have to deteriorate markedly.”