Comment: Since the Euro’s introduction in January 1999 it has traded around a mean of 4.0200 Polish zlotys. Currently 4.3500 it is one standard deviation above its mean, just under the critical 4.5000 above which it has traded only in times of extreme stress in the financial system. Therefore we shall hope it can retreat from this month’s high at 4.4375 and start holding below 4.3500 for the next three months. This should allow it to reverse some of this year’s rally, maybe back down to 4.1000. However, because bullish momentum is almost as strong as it has ever been (bar Q1 2009), there is a chance of another massive ‘spike’ higher triggered by a weekly close above 4.5700. This possibility, supported by the moving averages, explains why one-month at-the-money implied volatility at 14.00% is well above the very long term mean of 10.00% (this reached a record 37.50% in November 2008). Were this to be the case expect a re-test of 2004 and 2009’s record highs at 4.9300/4.9430, not our preferred scenario.

A weekly close above 4.5700 forces us to adopt Plan B.

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