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Macro and Vol Commentary

EURPLN has rallied in recent months despite the poor economic outlook in Europe and rising rates in Poland. What happens next?

  • Poland posted strong economic growth for Q1 at 8.5%Y/Y compared to 7.6% Y/Y in Q4 2021; COVID and lockdowns will skew these numbers in 2021. Economic growth accelerated to 2.4% Q/Q.
    • Despite high inflation at 12.4% Y/Y in April, and 12.3% the month prior, consumer expenditure stayed firm in Q1, but this will moderate significantly.
    • Inflation will continue to grow in the coming months as energy, food, transport, and labour costs are not priced into the market.
    • Real interest rates are negative and will likely deepen into negative territory despite higher rates in Poland.
  • Unemployment in Poland has declined and stands at 5.4% in March; vacancies increased in March to 94,800, up from 81,300 the previous month.
    • Unemployment stood at 902,100 in March, and this will continue to fall further in the longer run.
    • In March, employment was 2.4% Y/Y with the M/M gain at 0.2%, marginally higher than expectations.
  • Wages continue to rise at a strong rate, with average wages at 12.4%, up from 11.7% in February. The expectation is that average gross wages will reach 12.8% Y/Y, marginally above inflation, at 12.4%.
    • Poland’s Central Statistics Office suggests that the wage change on a standardised basis increased 9.74% Y/Y in March.
  • New orders are declining on a month-on-month basis, and the index now stands at 124.9, down from 132.5 in February. We expect this reading to fall further as consumer sentiment declines.
    • Retail sales continue to go from strength to strength in Poland, with real retail sales at 16.4% M/M in March, up 9.6% Y/Y.
    • Most sections of retail sales such as furniture, housing electronics, autos, and fuels all increased in the month to March. However, foodstuffs and pharmaceuticals declined.
    • Wholesale inventories are rising, and this is starting to indicate an economic slowdown and subdued propensity by consumers to purchase goods.
  • Trade outlines a strong consumer outlook in Poland, with merchandise imports at 9.47% M/M in March and up 20% Y/Y. This totalled 33.043bn, up from 30.185bn the month prior.
    • Exports were still strong but not enough for a trade surplus, and the balance was -30bn, up from -14.22bn in February. We expect consumer demand to decline, and imports will likely contract accordingly, but large trade partners such as the EU are also in a tough economic situation.
    • Poland’s proximity to Ukraine will continue to cloud trade and sentiment within the country, but there remains a significant political and geopolitical risk in the region, which will continue.
    • With key trade partners also struggling from a growth perspective, lower auto production and sales in Europe and ROW will reduce exports from Poland as auto parts are a key component of their exports. In 2020 it was the most exported product in Poland and was the 9th largest exporter of vehicle parts in the world.

Central Bank

  • FX reserves have been declining in recent months and now stand at $131.01bn, having started the year at $146.16bn. We could see more selling of FX reserves in the coming quarters to free up capital.
  • Gold reserves in Poland have been rising significantly, a sharp rise in gold reserves reaching $62.061bn; this is up from $49.82bn in June 2021. The rising gold purchases outline Poland’s hedge against an economic slowdown and geopolitical tensions.
  • The bank has official asset reserves at EUR144.0036bn, marginally higher than EUR142.027bn.
  • The MPC has increased rates sharply in recent meetings to counteract inflation and the crisis in Ukraine; in their latest meeting, they increased rates by 75bps.
  • Inflation expectations are high and strong growth indicates that interest rates can rise further before negatively impacting GDP; however, we expect growth to slow in Q2.
  • Bond yields have understandably risen, with the front end moving quickly, but the curve is now flat. The 2yr yield is 6.2%, and the 10yr at 6.615%.

(Source: Poland’s Central Statistics Office, Narodowy Bank Polski)

The ECB has not increased rates but has reduced asset purchases as they look to reduce stimulus into the economy. The rate hike probability for a hike in July is 247%, 371% in September and 180% in October, with December at 266%. The rate hike path could see interest rates positive in October, helping to boost prospects for the Euro, we have seen EURPLN strengthen in recent months, and this could continue as the prospect for an economic slowdown in Poland increases and their proximity to Ukraine weighs on sentiment. Yields and rates in Poland are significantly higher, but all 10yr yields in Europe are now positive and have further to go. We also expect inflation to be peaking in the coming months, but the energy crisis in Europe will remain a threat. Growth in Europe was 2.5% Y/Y and 0.5%, and while we see a downside to this, the bloc beat expectations in Q1 and inflation for April came in under expectations. The back end of Poland’s yield curve has a downside if they start to slow interest rate hikes due to softer inflation and slower growth. However, we expect G10 inflation to slow with EM and countries like Poland to remain high. We expect EURPLN to continue to trend lower and favour selling rallies in this pair; a near term target is 4.60, and confirming the break of the supportive 100 and 200DMAs, the pair needs to break towards this year’s high of 4.50.

Volatility Commentary

Monetary policy divergence and the potential agreement of Poland-EU Recovery and Resilience Facility (RRF) fund worth EUR 36bn have lately benefitted PLN against EUR. However, we expect inflation forces to play a key role in the next months, with EM inflation to be more persistent than in EU. This could help volatility to realise higher than the implied over a 3 months’ time frame, also in light of geopolitical uncertainty and divergence in economic fundamentals. Indeed, volatility skew in favour of Calls trades near high levels, with topside bid, highlighting the fact that the option market is still on a risk-off focus. All in all, we favour buying EUR rallies and Vol over a 3 months period.

EURPLN Trade Idea

Trade idea in 3 months (Exp 19/08/2022):

  • Buy EURPLN Put, 4.7 Strike, 4.6 KI Barrier, in EUR 5mio – Pay EUR 69K circa.
  • Sell EURPLN Call, 4.8 Strike, in EUR 7.5mio – Rec EUR 109K circa.
  • Total structure net Receive EUR 40K circa.

Positioning Charts

USDBRL NDO Positioning Data 05/05/2022 - 12/05/2022

Fewer options were traded in the week to 19th May, put options traded a similar range than the previous week but the options traded at 4.60 have an expiry in August and a low notional value. Near term puts have a strike above 5 and a higher notional suggesting more conviction, but spot has fallen below 5 and we expect to see options move accordingly. There is little upside cover but the calls have larger notional values but we do not expect the market to reach 5.40.

USDBRL NDO Positioning Data 12/05/2022 - 19/05/2022

USDCNY Vanilla Positioning Data 05/05/2022 - 12/05/2022

Once again there is a limited patter to USDCNY, comparing the two charts below, there are fewer call options traded in the week to May 19th. There is a cluster of puts traded with a range of 6.60-6.90, this suggests the market believes there will be a moderate correction. I don't think there will be much change until China come out of lockdown. There is more upside cover due to expire after June with a strip of puts traded for expiry in August. 

USDCNY Vanilla Positioning Data 12/05/2022 - 19/05/2022

EURPLN Vanilla Positioning Data 19/03/2022 - 19/04/2022

Options liquidity in EURPLN is poor, and three were very few options traded in the month to May 19th. The market expects a moderate correction to the upside in the near term with calls due to expire around spot in a range of 4.60-4.80. However, as we move through June and July the market is expected to retreat once again as put options traded increase and have a higher notional. 

EURPLNVanilla Positioning Data 19/04/2022 - 19/05/2022

Charts and Tables

FX Expiries

Volatility Grid

Historical Spot FX Volatility (30D Rolling)

FX Matrix (today)

Weekly Change

Key Events & Releases

Technical Analysis

JP Morgan Global FX Volatility 


The index has struggled above resistance at 11.50 in recent trading sessions and declined today to trade at 10.56. However, support at 10.57 has also been robust, and the index failed to break below it in May. The indicators highlight the possibility of the support at this level holding firm once again, as %K/%D is seen tailing off on the upside in the oversold, while MACD diff is negative and converging. To confirm that, the index needs to break above 100 MA at 10.77 before targeting 50 MA at 10.98, confirming the triple bottom formation. On the downside, if the near term support does not hold, the index could weaken strongly to the 50% fib level at 10.19 before 10.00. The indicators point to support forming at current levels, and this could indicate a change of trend in the near term. 

Dollar Index 


The dollar index has been gaining in recent weeks, but resistance at 104 prompted the index to test the 102 level to now trade at 102.93. Prices broke below the support level of 100 MA at 103.64, and today’s losses are well bid. The stochastics are confirming the downside momentum, with %K/%D seen converging on the downside and now falling in the neutral territory. The MACD diff is negative and diverging strongly, suggesting we could see prices edge back to the 102.35 level. If this support is breached, we could see significant downside momentum to 200 MA at 101.98. On the upside, if resistance around 100 moving average does not hold firm, this could trigger gains back to 50 MA at 103.97, a robust resistance. The most recent selloff and indicators suggest we could see the index weaken further in the near term.



The pair has been on the back foot recently, prompting a breach of support levels at all moving averages, falling to trade at 4.64. Stochastics have converged on the upside and now rising; meanwhile, MACD diff has also flipped into positive territory – a strong buy signal. A long candle body today and a bullish engulfing pattern confirm this momentum, and if prices break back above 200 MA at 4.6619, then we could see further upside to 50 MA at 4.6675. Alternatively, if resistance at 200 MA holds, the pair could drop down to test support at 4.6173, the month low, before 4.60. The indicators and candle formation point to support forming at 4.6318, and we expect the pair to edge higher in the near term. 



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