Traders patiently watching the zloty’s climb against the dollar in 2009 have fairly good evidence of an imminent reverse trend.  A glance at the five-year chart shows that USD/PLN has now twice bounced off some fairly important support levels.  Furthermore, intuitively the breakdown makes sense.  Per a Bloomberg report today, Ulrich Leuchtmann, head of foreign- exchange research at Commerzbank in Frankfurt, opined that currencies in eastern Europe were starting to come under pressure.  “It’s a natural correction from the very upbeat sentiment that we saw recently.  From a fundamental point of view such a quick recovery didn’t make much sense,” he said.  Thanks to JB3 over at Xtrends, by the way, for pointing out this setup.

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According to the Financial Times on Thursday, “Poland will remain among the EU’ s top performers because of actions “undertaken by successive governments and the clear commitment to financial discipline”.  That said, rising unemployment and declining credit will hamper consumer demand, whose resilience hitherto has help to allow Poland’s GDP growth to easily outshine the EU average in 2009.  The bigger question is whether Poland can make it to Euro entry–falling tax revenues are accelerated by plummeting credit growth, a spiral which may require public debt to ultimately expand beyond that which Brussels deems kosher.

In the meantime, Standard Chartered, a bank, recommends buying the zloty and selling the euro.  Poland’s currency has fallen 28% since last July’s highs–the world’s worst performing emerging market currency–despite being the only country in the region to report expansion in that time.  Complicating such a trade, however, would be possible contagion from

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Interesting piece in this week’s Economist regarding the lack of correlation among central and Eastern European economies during the credit crunch:

Tarring all with the mistakes of overheated Latvia, chaotic Ukraine or debt-sodden Hungary makes no sense. Nor does lumping together rich and poor countries, or those in the European Union and those outside. Exchange-rate regimes vary: two countries are in the euro; five countries have pegged their currencies to it; others float.

So far at least, speculators who counted on contagion toppling countries like dominoes have little to show for it, while those who bet the other way have juicy gains. Poland’s stockmarket is up by nearly 40% since its low in February, Hungary’s has risen by half and Russia’s by nearly 90%.

Poland received a $21b credit line from the IMF this month and is widely considered the region’s most resilient, partially due perhaps to the fact that

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Bloomberg reports that “some euro-region members now pay more to borrow than emerging markets such as Poland and the Czech Republic. The spread between a Czech 10-year sovereign note and the German bund was 78 basis points, less than Italy, Spain, Greece, Portugal, Belgium and Ireland.”  The Czech Republic is rated A at S&P, and Poland A-. Prices now reflect odds of between 10 percent and 20 percent that the euro-region will disintegrate following a series of credit downgrades from Standard & Poor’s this month, according to BlackRock. The difference in yields, or spreads, between [Greece, Spain and Italy's] 10-year bonds and those of benchmark German securities was close to the widest today since the euro’s debut in 1999.

Bring up “frontier markets” and most investors envision a potpourri of nations primarily located in Africa or the Middle East. Not so fast, my friend. A closer inspection of the growing number of frontier mutual funds and ETFs, for instance, shows that at least in regards to some of them, there is very little correlation to the aforementioned regions. Consider the Claymore/BNY Mellon Frontier Markets ETF (NYSEArca: FRN). The fund uses an indexing approach and seeks to more or less replicate, before fees and expenses, an equity index called The Bank of New York Mellon New Frontier DR Index. What does that mean? A close inspection of the fund’s holdings shows that Poland (25.07%), Chile (23.55%) and Egypt (14.78%) account for a majority of the top country weightings, and moreover that financials account for 41.61% of the sector weighting. Per Matthew McCall, ...

by Edward Hugh: Barcelona Yesterday, the Ukraine received a USD16.5bn loan from the IMF and the IMF at the same time said that it would agree with the Hungarian government on a rescue package in the coming days. Under normally circumstances this would be good news for CEE assets. However, it seems like the markets are totally giving up on CEE. This morning the Hungarian stock markets have dropped more than 10% despite the promise of an IMF package. ......it is worrying that the CEE markets continue to sell-off despite IMF’s clear commitment to support the region’s markets and economies. One might in fact see the lack of positive response to IMF’s rescue packages for Hungary and the Ukraine as an indication that these packages are in fact making the markets even more nervous that something “is seriously wrong in CEE”. Lars Christensen, Chief Analyst Danske Bank, CEE: Markets fail to respond ...