Currency report: External pressures

The most noteworthy aspect of this is that Poland is seeing the highest level of interest rates since 2005. Analysts forecast a further 25-basis-point hike in the first quarter of 2007.

The increase did not have much of an impact on the Polish currency, as investors had anticipated the Monetary Policy Council's decision. Other factors did affect the Polish złoty, though, such as a report on Poland's GDP in 2007 which pointed to a 6.5 percent increase during the year. Even more importantly, the dynamic movement of the EUR/USD market influenced the currency.

The increase on the EUR/USD market resulted from negative feedback from the US, with new home sales decreasing in December by 4.7 percent m/m, against an expected 1.5 percent increase, and a nonfarm payroll decrease of 17,000 work places, against an expected 70,000 increase. This data came as quite a surprise after better-than-expected results from the ADP Nonfarm Employment Change.

What can we expect this week? I believe that the EUR/USD market will experience a corrective movement. This belief is based on negative technical signals from the market and the weakness of candlestick patterns in the borders of the previous top. On the other hand, if the bulls show their power on the EUR/USD market, then we can expect to see record lows on both the USD/PLN and EUR/PLN markets soon.