EUR/USD returned to parity, PLN bleeds, and CHF thrives (Daily analysis 22.08.2022)

After a few weeks of summer calm in the markets, the trend of a strengthening dollar and an overvalued euro is back in full force. Fear about the condition of China's economy is playing an important role. Still, threats of an energy crisis in Europe under the influence of a sharp rise in the price of electricity and gas contracts are also in the spotlight. The effect is a renewed turn towards the dollar, which has gained against all the main currencies and, after a month, has again equalled the euro in value. The US currency is less tied to the global economy and also has energy independence at its back. As if that were not enough, the market is beginning to lose faith in the Fed's change to a softer stance.

Black clouds over the eurozone and the troubled single currency have thrown the zloty into trouble. At the start of the week, the euro and dollar cost around 4.75 PLN and the franc is priced at over 4.95 PLN, the highest since the March panic following Russia's attack on Ukraine. The EUR/PLN pair rose from multi-week lows and around 4.65, consistent with the average level in 2022, first to 4.70 due to liquidity reduced by the holiday, and then continued rising towards 4.75. This means that the single currency rose by around 2% in a few sessions. It is worth noting that when the euro and dollar equalled their value in July, the pressure on the zloty was stronger, with the euro exchange rate reaching 4.85 PLN. Last week wiped out half of the month-long recovery, so the move can still be seen as a corrective rebound. At the same time, the gate for the EUR/PLN to return to slightly lower levels will open after the rate retreats under 4.72. However, the road to this seems to be distant.

Increased demand for the dollar and cooling investment sentiment are creating an unfavourable environment for the zloty. The EUR/USD exchange rate has fallen more than 3% since 11 August and is once again testing the round barrier of 1.0, at which it turned back a month ago. Given the trading pattern, i.e. the failure to break through the 2017 lows lying slightly below 1.04 and the dynamic turnaround of the exchange rate, the risk lies firmly on the side of a sustained push through parity and a deepening of the discount towards 0.97. In such a scenario, the EUR/PLN would probably rise to 4.80. The euro's weakness and the risk of a crisis in the Old Continent are traditionally water on the Swiss currency's mill, with the EUR/CHF trading well below 1.00.

At the moment, there is little in favour of the euro. The main reason for hope is that the EUR/USD has so far failed to leave the summer range, with the lower boundary at 0.9950. Admittedly, it is extremely close to doing so, but whether the main currency pair deepens its decline in the coming days or turns back towards the middle of the summer range at the end of the month will depend largely on the tone of Friday's speech by the Fed chief. Jerome Powell will address a symposium of central bankers in Jackson Hole, USA. Also important will be tomorrow's PMI data on sentiment in European manufacturing and services, from which it is difficult to expect optimistic readings.