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Co-variance in Action: Analyzing the Impact of EUR/USD Exchange Rate Changes on Polish Zloty (PLN) Valuation (2019–2022) as a Predictive Tool in Forex Markets

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  • Jaroslaw Klepacki

Abstract

Purpose: The purpose of the study is to examine the phenomenon of co-variance using the example of the impact of changes in the EUR/USD exchange rate on the value of the Polish zloty (PLN) as an element of forecasting in the foreign exchange market. The first objective of the study is to confirm the hypothesis that one of the most important external factors influencing the state of the Polish currency is the euro-dollar exchange rate. The second secondary objective is to confirm the research findings that an increase in volatility on the foreign exchange market often leads to a depreciation of the currencies of countries with a relatively higher interest rate level, i.e., mainly emerging countries, even in periods of unpredictable phenomena. Design/methodology/approach: Using research based, inter alia, on the Pearson linear correlation coefficient over the period 2019 - 2022, at different time intervals for Japanese technical analysis candles, taking into account the occurrence of so-called unpredictable events. Findings: The results show that, contrary to popular opinion, it is possible to speak of the occurrence of a co-variance phenomenon with respect to USD/PLN and EUR/USD. Moreover, the hypothesis of an impact of the EUR/USD exchange rate on EUR/PLN according to the principle: "an increase in the EUR/USD exchange rate favours the zloty against the euro" is also not supported by the research conducted. It can be confirmed that the sharp increase in liquidity and volatility in the area of the currency pairs studied does not allow us to confirm the assumption that they directly favour the phenomenon of co-movement. Practical implications: These results provide an important practical vector for the creation of predictive models in such a complex and volatile area as the foreign exchange market. Originality value: This research aims to fill the research gap in the field of exchange rate forecasting models taking into account extreme phenomena of the external environment. The implications of such a study can be applied as part of a prediction system in the corporate area.

Suggested Citation

  • Jaroslaw Klepacki, 2024. "Co-variance in Action: Analyzing the Impact of EUR/USD Exchange Rate Changes on Polish Zloty (PLN) Valuation (2019–2022) as a Predictive Tool in Forex Markets," European Research Studies Journal, European Research Studies Journal, vol. 0(2), pages 952-966.
    • Handle: RePEc:ers:journl:v:xxvii:y:2024:i:2:p:952-966
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    References listed on IDEAS

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    More about this item

    Keywords

    Forecasting; currency market; liquidity management; volatility; correlation.;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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