USD/PLN Trading Guide: How to Trade the USDPLN FX Pair

While many traders may choose to focus on the most popular Forex pairs such as the EUR/USD, the GBP/USD, or the USD/JPY, others might prefer to trade lesser known pairs like minors and exotics.

For example, currency pairs like USD/PLN (USDPLN), though less common, can indeed be attractive to traders who understand the factors that drive their exchange rate and the underlying dynamics.

Let’s take a closer look at the mechanisms that shape the relationship between the US Dollar (USD) and the Polish Zloty (PLN) and how to engage in CFD trading of this currency pair.

TL;DR

• The USD/PLN Forex pair refers to the amount of Polish Zloty (PLN) required to purchase one US Dollar (USD).
• As of 2022, the USD is the most traded currency on global markets and represents 88% of all Forex positions, while the PLN represents only 0.72% of the $7,505 billion exchanged daily on the Forex market.
• Factors like interest rates, the economic health of the United States and Poland, global trade relationships, political events, geopolitical tensions, unforeseen events, and trader mood can exert an effect on the USD/PLN.
• Various financial products* exist for trading the USD/PLN currency pair, including Exchanged-Traded Funds (ETF), futures contracts, options contracts as well as Contracts for Difference (CFDs).
• Individual retail traders frequently use CFDs on the USD/PLN as a means to speculate on both upward and downward price fluctuations, without the need to possess the actual currencies.

* Availability subject to regulation

What Does the USD/PLN Forex Pair Represent?

The USD/PLN Forex pair shows the exchange rate between the US Dollar (USD), which is the official currency of the 5 US territories and 11 foreign nations, such as Ecuador, El Salvador, and Zimbabwe, and the Polish Zloty (PLN) which is the official currency of Poland.

How to Read the USD/PLN Forex Pair

The USD is the base currency and the PLN is the quote currency, so the value of the USD/PLN indicates how many Polish Zloty are needed to buy one US Dollar. If the USD/PLN is worth 4.09, then it means that you can buy 1 USD with 4.09 PLN.

USD/PLN Pair History

Since the 1990s, the USD/PLN currency pair's journey can be broadly categorised into three key stages:

1. 1993-1999: The USD/PLN strengthened and gained more than 141% from around 1.7133 to around 4.1300.
2. 2000-2008: The FX pair weakened and lost more than 40% from around 4.1325 to around 2.4628.
3. 2009-June 2024: The FX pair has been strengthening and is up more than 42% from around 2.8621 to around 4.0884.

What Can Influence the Exchange Rate of the USD/PLN Currency Pair?

Below are some elements that have the potential to influence the overall Forex market, as well as the specific USD/PLN currency pair.

Analysing these factors can increase your understanding of potential drivers of the USD/PLN exchange rate and help you make more informed trading decisions:

• Monetary Policy: The monetary policies such as interest rate decisions made by the Federal Reserve (Fed) in the United States and the Narodowy Bank Polski (NBP) in Poland have the potential to impact the demand and supply of each currency within the Forex pair, which, in turn, can influence the value of the USD/PLN pair.
• Guidance From Central Bankers: Central banks have the responsibility of formulating monetary policy and conveying their plans about future interest rates and economic conditions through a range of tools such as news conferences, speeches, and official announcements. This form of communication is referred to as "guidance." The impact of central bank guidance on the USD/PLN depends on whether it is more hawkish or dovish than anticipated, as it influences market expectations about the trajectory of the monetary policies in each country.
• Global Economic Stage: The health of the global economy, whether booming or experiencing a recession, can have an impact on currency values such as the exchange rates like USD/PLN, as it can influence the degree of economic activity in each region.
• Economic Releases: Major economic statistics, such as the Consumer Price Index (CPI), the Personal Consumption Expenditures (PCE), the Consumer Confidence Index (CCI), the Gross Domestic Product (GDP), and the Purchasing Managers' Index (PMI), can influence local and global economic climate and impact the USD/PLN exchange rate.
• Political Events: The USD/PLN exchange rate can be influenced by local and international elections through two primary mechanisms - changes in economic policy and disruptions in global commerce, as they induce uncertainty and distort market expectations. Elections have the capacity to bring about changes in government, which in turn might result in the implementation of new economic policies. Policy changes, such as adjustments in spending priorities or trade rules, have the potential to modify a country's economic perspective and level of risk.
• Geopolitical Events: Tensions or wars on the international stage have the potential to hinder the movement of goods and services across borders, which may have a significant influence on the economy and currencies.
• Speculation: Speculators try to forecast upcoming fluctuations in the currency pair within a certain time frame (often the short term), and their activities can exert influence on the USD and/or the PLN. It can have an influence on the USD/PLN exchange rate by affecting the behaviour of buyers and sellers. The buying or selling pressure might arise from the expectation of the FX pair moving up or down, as well as the self-fulfilling prophecy and the tendency to follow the crowd (herd mentality).

How to Decide Whether To Buy or Sell the USD/PLN

When trading the USD/PLN, you have two main analysis methods to predict where the Forex pair might be heading:

• Technical Analysis: This approach focuses on the analysis of past price data, trends, patterns in market behaviour, trading volume, and chart patterns in order to identify possible future changes in the USD/PLN. Technical analysts apply various indicators and tools to assess the intensity of buying and selling activities, identify probable levels of support and resistance, and evaluate the overall mood of the market.
• Fundamental Analysis: This analytical method explores in greater depth the political, social, and economic factors that might potentially impact the valuation of the PLN in relation to the USD. When doing fundamental analysis, traders take into account many elements such as interest rates, inflation, worldwide commercial relationships, and the general economic condition of each country.

USDPLN CFD Trading

While traditional Forex trading might involve physically buying and selling currencies, most USD/PLN retail trading use Contracts for Difference (CFDs). Let’s get into what CFD trading is, its advantages and its limitations:

What Are Forex CFDs?

Forex trading involves the exchange of currencies through currency pairs at a specific rate. In the case of the USD/PLN, imagine you’re purchasing the USD/PLN (US Dollar vs. Polish Zloty). You would benefit if the USD strengthens against the PLN (USD/PLN increases). On the other hand, you would experience a loss if the exchange rate decreases (USD/PLN goes down).

Unlike traditional Forex trading where you actually own the currencies, Forex Contracts for Difference (CFDs) provide an alternative. You can engage in speculation on the price movements of currency pairs such as USD/PLN without the need to possess the actual currencies involved. This means that you trade on the price difference between the opening and closing of the contract.

What Is Leverage in CFD Trading?

Leverage is a crucial aspect of CFDs. With this type of trading, you have the ability to trade more money than you own on your trading account, while only immobilising a fraction of the initial capital (margin).

Leverage has the potential to increase your gains if the market moves in your favour. Nevertheless, leverage can also magnify your potential losses.

What Are the Advantages of Using CFDs to Trade the USDPLN Pair?

There are various reasons why Forex traders may incorporate CFDs into their strategy:

• Accessibility: The Forex market is open 24/5, which means that CFD Forex traders can trade the USD/PLN and other FX pairs whenever they’re available during the day according to the CFD provider trading hours.
• High Liquidity: The currency market is highly liquid with exchanges of around $7.5 trillion per day as of April 2022.
• Shorting: With CFDs, traders can trade both rising and falling markets. To capitalise on falling prices, Forex CFD traders can use short-selling.

What Are the Risks of Using CFD Trading on the USDPLN?

While trading CFDs on the USD/PLN can offer some advantages, it also has some limitations:

• High Volatility: Both Forex trading and CFD trading involve inherent risks linked to volatility, which refers to the frequent and often unpredictable fluctuations in currency exchange rates.
• Leverage: Because it amplifies all currency movements, leverage can trigger large and quick losses when the market doesn’t move in your direction.

Trading Strategies You Can Use to Trade the USD/PLN Pair

When getting into USD/PLN trading, there are various Forex trading strategies you can use, such as day trading, swing trading, and position trading. Let’s take a closer look at these 3 approaches:

USD/PLN Day Trading

Day trading the USD/PLN pair entails opening and closing positions within the same trading day, taking advantage of short-term price fluctuations in the USD/PLN currency pair.

Engaging in frequent trading enables you to seize multiple price movements throughout the day, potentially accumulating profits if the market aligns with your predictions. By avoiding holding positions overnight, you can mitigate the risk of being affected by price fluctuations that may occur overnight.

However, day trading demands constant monitoring of trading charts and the economic calendar, requiring significant time and focus throughout the trading day. Operating in a fast-paced trading environment and facing the potential for rapid losses can pose a challenge for certain traders when it comes to managing their emotions.

USD/PLN Swing Trading

Using swing trading on the USD/PLN pair entails keeping your trading positions open for days or even weeks, with the goal of capturing price swings by analysing technical indicators or observing broader market trends.

Swing trading offers greater trading flexibility compared to day trading, as positions are held for longer periods. In addition, swing traders attempt to capture longer trends, which can potentially result in larger returns if the price movement is larger and it is in your favour compared to the smaller movements that can be recorded through day trading.

As profits tend to materialise over time, it takes a certain level of patience to wait for your swing to play out. Holding positions overnight comes with the risk of potential price movements that could eat into your profits or result in losses. It also comes with overnight fees.

USD/PLN Position Trading

Position trading involves taking a long-term perspective on the USD/PLN, maintaining positions for several months in response to fundamental analysis and significant economic or political changes.

For this kind of trading, market analysis and position adjustments are done periodically, which means you don't have to constantly monitor your position on the USD/PLN like you would with day or swing trading.

By capitalising on major trends, position trading has the potential to capture larger price movements and trends over extended periods of time. It is also feasible to tune out the short-term market fluctuations and keep your eyes on the long-term goals.

On the other hand, witnessing returns can be a lengthy process, demanding great patience and discipline to remain committed to your longer-term goals. Furthermore, unforeseen circumstances have the potential to influence market movements in a direction unfavourable to your position. This necessitates a considerable risk tolerance when maintaining a losing position over a certain period.

If USD/PLN piques your interest, you can trade USD/PLN CFDs with Plus500.