EUR/PLN likely to trade at 4.20 by end of Q1 2016

EUR/PLN overshot largely due to ECB's last meeting. In its December meeting, ECB came accross less dovish than the market expected, driving EUR/USD to 1.09. As a result EUR/PLN rose.

US Fed is expected to continue rising next year, this should help lead EUR/USD lower and reverse EUR/PLN lower. Adding to it, interest rate spreads between the local fixed income market of Poland and EU remain wide.

This should support EUR/PLN. Given this EUR/PLN will follow suit. We also do not believe current conditions warrant a cut in near term. NBP Governor belka stated at a press conference on Dec 15 that PLN has weakened beyond equilibrium level.

"We forecast EUR/PLN at 4.20 by end of Q1. This is despite EUR/PLN overshooting our forecasts in the past month. We believe the pace of PLN appreciation against the EUR will accelerate after Q1 once there is more clarity on MPC's new composition and the government's decisions on a banking tax and conversion of CHF-mortgages", says RBC Capital Markets.