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EUR/CZK likely to decline gradually to 25 by H1 2018 - Commerzbank

The EUR/CZK pair is expected to decline gradually. According to a Commerzbank research report, the currency pair is likely to decline to 25 by the first half of next near. This is expected to be due to the Czech National Bank’s more hawkish monetary policy stance as compared with other CEE nations. If the central bank were to launch into a more aggressive hiking cycle than expected, the EUR/CZK pair would definitely decline by more than currently projected.

“As base-case, we maintain a modest appreciation profile for CZK for the coming quarters: there is still large long CZK positioning in the market, which was built up in anticipation of the FX cap removal – the latest data on foreign ownership of local government bonds suggests that these long positions have not unwound”, stated Commerzbank.

The size of such positioning is seen in huge rise in FX reserves resulting in the removal of the cap. Every considerable appreciation by the Czech koruna will therefore give an incentive for such positions to take profit, which signifies that in quarters ahead there would be self-neutralising forces preventing too rapid a CZK appreciation, added Commerzbank.

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