Polish zloty forecast after disappointing industrial production data

Poland has one of the largest economies in Eastern Europe, often acting as a bellwether for other regional economies. As such, it is worth noting that its industry had a surprisingly weak start to Q3 2023.

More precisely, July industrial production dropped by 2.7% YoY on expectations of +0.6%. Furthermore, a close look at the data is even more worrying for a few reasons.

First, all four major commodity groups registered yearly declines. Second, producer price deflation fell -1.7% on expectations of -1.2%.

So what does it mean for the Polish zloty?

PLN/USD bullish trend might be over

The Polish zloty has outperformed the US dollar since October 2022. What started as a small bounce turned into a bullish trend, as reflected by the series of higher highs and higher lows that followed.

The series is still in place, although the market dropped below the bullish channel. Therefore, the bias remains bullish as long as the price action holds above the last higher low.

A drop below the support area given by the last higher low spells trouble for bulls for at least two reasons. First, the market had already dropped out of the bullish channel, meaning some bulls already took profit. Second, such a drop marks the official end of the bullish market, and thus, more short-sellers will join the party.

A conservative trader should wait and see where the PLN/USD goes next and act after. In other words, let the market move first, and act second.

On the bearish side, a close below 0.24 warrants a move into the 0.22 area. Such a trade needs a stop at the highs above 0.25.

On the bullish side, a close above 0.25 puts bulls back in control. Bulls should target 0.27 and above, with a stop at 0.24.