EUR/PLN Trading Guide: How to Trade the EURPLN FX Pair

Trading the EUR/PLN currency pair allows traders to actively engage with both a major and an emerging market currency. Dynamic factors like monetary policies, economic indicators, and geopolitical events shape this forex (FX) pair. Monitoring these drivers is key to making more informed trading decisions.

This guide breaks down the forces moving the EUR/PLN exchange rate and explores how traders can use contracts for difference (CFDs) to speculate on market movements. By understanding the trends and risks, you can approach EUR/PLN trading with more confidence.

TL;DR

• The EUR/PLN pair represents the number of Polish zloty (PLN) needed to purchase one euro (EUR).
• Factors such as monetary policies, economic indicators, and political events drive the EUR/PLN exchange rate.
• CFDs allow traders to participate in both rising and falling markets with the use of leverage, making effective risk management essential due to the potential for amplified gains and losses.

The EUR/PLN Currency Pair: A Closer Look

The EUR/PLN currency pair reflects how many Polish zloty (PLN) are needed to purchase one euro (EUR). The euro is the official currency of the Eurozone, used by 20 of the 27 European Union (EU) member states and managed by the European Central Bank (ECB). The zloty is Poland's national currency, managed by the National Bank of Poland (NBP). This FX pair is categorised as an exotic currency pair, combining a major currency (the EUR) with an emerging market currency (the PLN).

The euro, introduced in 1999 as part of the European Monetary Union (EMU), has played a significant role in stabilising cross-border trade and reducing exchange rate risks within the Eurozone.

Meanwhile, the Polish zloty, originally introduced in the 1920s and reformed in 1995, operates under a floating exchange rate system, meaning its value is determined by market forces like supply and demand.

Influences such as inflation, economic growth, and geopolitical events all impact the zloty's value. Understanding the exchange rate dynamics between these two currencies is essential for effectively managing trading risks.

Trading the EUR/PLN FX Pair Using CFDs

One way to trade on the EUR/PLN's price movements is by trading contracts for difference. CFDs enable traders to gain exposure to both rising and falling market trends without owning the underlying currencies. This flexibility is particularly useful when anticipating short-term price shifts driven by factors such as monetary policy adjustments, economic indicators, or geopolitical events.

When trading EUR/PLN CFDs, it is important to understand leverage, allowing you to trade on margin by depositing only a fraction of the full trade size. While this magnifies your potential gains, it also increases the risk of larger losses. For instance, if market sentiment shifts unexpectedly, such as in the wake of political instability in Poland or changes in the ECB's monetary policy, a leveraged position could amplify your exposure to those price movements.

Risk management is crucial when trading CFDs. Tools such as stop losses and limit orders can help mitigate risk by automatically closing positions when certain price points are reached. However, understanding market trends and having a solid risk management strategy is essential to balancing potential gains and losses when trading EUR/PLN CFDs, although positive results in the CFD arena are never guaranteed.

What Moves the EUR/PLN Exchange Rate?

Various factors influence the EUR/PLN exchange rate, with some having more direct impacts than others. While the following are some key influences, it's important to note that an ever-evolving range of variables, including global, political, and economic factors, shape exchange rates.

Some of the primary drivers include monetary policies, economic indicators, political and geopolitical events, and global market sentiment. Depending on market conditions and traders' outlooks, these factors interact in complex ways to either strengthen or weaken the exchange rate.

Monetary Policies

Changes in monetary policies, such as quantitative easing (QE), are known to shape the movement of the EUR/PLN exchange rate. QE is a policy characterised by central banks purchasing securities to increase liquidity and lower interest rates in an economy. The ECB uses QE to fulfil its mandate of price stability, including increasing liquidity and easing financial conditions in the Eurozone.

When the ECB engages in QE, the increased liquidity can lead to a weaker euro, potentially lowering the EUR/PLN exchange rate. Conversely, if the ECB tightens monetary policy by reducing asset purchases, the euro may strengthen, possibly causing the EUR/PLN exchange rate to rise.

Economic Indicators

Key economic indicators, including gross domestic product (GDP), inflation, and employment data, may directly influence the EUR/PLN exchange rate. For instance, if Poland's GDP grew, it could potentially lead to a stronger zloty as demand for Polish goods might increase. On the other hand, higher inflation, as indicated by the consumer price index (CPI), could weaken the zloty by reducing its purchasing power and creating price instability. Similarly, strong employment data could indicate a healthy economy, which may positively affect the zloty by boosting confidence in the currency.

Political and Geopolitical Events

Political shifts, including elections and policy decisions, can inject uncertainty or confidence into the EUR/PLN foreign exchange market. For instance, elections in Poland or the EU could potentially lead to volatility as traders react to the possibility of policy shifts, which may alter fiscal or monetary strategies. Political events supporting fiscal responsibility or promoting economic growth might strengthen the zloty, boosting trader confidence.

For example, during Poland's 2016 constitutional crisis, political upheaval and judicial reforms led to widespread protests and concerns over democratic backsliding. The uncertainty surrounding these events impacted trader confidence, putting pressure on the zloty as the country's political stability was called into question. Political instability often negatively affects the currency, as traders tend to prefer stable and predictable environments.

Global Market Sentiment

Global market sentiment reflects traders' collective emotions and outlooks regarding the international economy, influencing exchange rates. Positive global sentiment, driven by optimism in the global financial markets, could strengthen the zloty as traders seek higher returns in emerging markets like Poland.

On the other hand, during periods of negative global sentiment, such as economic crises or financial instability, the zloty could weaken as traders move towards safer assets, like the euro or U.S. dollar, leading to a rise in the EUR/PLN rate. For example, during the COVID-19 pandemic, negative sentiment led to a significant weakening of the zloty, with the euro rising by 3.5% against the Polish currency.

Conclusion: Trading the EUR/PLN FX Pair

Understanding the EUR/PLN currency pair requires a deep grasp of various factors, including monetary policies, economic indicators, political events, and global market sentiment. These influences shape the value of the Euro and Polish Zloty in dynamic ways, creating both risks and potential opportunities for traders.

With CFDs, traders can trade on these price movements, whether the market is rising or falling. However, given the complexity and volatility of the factors involved, a well-rounded strategy incorporating risk management is essential when trading EUR/PLN CFDs.

If EUR/PLN trading piques your interest, you can start trading EUR/PLN CFDs with Plus500.