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EURCZK spot prices slide in falling wedge formation, as and when the abrupt upswings are observed the bears have been active at 21DMA (on the daily chart).
Very recently, you could very well observe the failure swings occurred exactly at stiff wedge resistance with shooting star formation at 26.2920 levels, consequently, prices slid below DMAs, expect more slumps on bearish DMA crossover.
On this timeframe, every now and then, shooting star candle patterns are occurred to signal weakness.
On a broader perspective, you can easily figure out whipsaws pattern occurred on EMAs ends with shooting star candle to indicate extreme weakness.
In conjunction with this bearish signal, 3-black crows candle pattern has occurred that signals more slumps on the table, bearish EMA crossover substantiate this bearish stance.
Most notably, both leading oscillators (RSI and stochastic) signal intensified bearish momentum by evidencing downward convergence. While both lagging indicators on both timeframes are also substantiating this bearish stance, please be noted that the bearish DMA and EMA crossovers signal the extension of price slumps. MACD, on the other hand, has been indecisive (on 4H chart) and signifies the extension of the bearish trend on monthly terms.
Fundamentally, CNB's latest board minutes, from June, portray an increasingly confident central bank, convinced that all domestic macroeconomic parameters are now consistent with (gradual) normalization of monetary policy.
We envisage only a low probability that the CB will hike its base rate by 0.20bp to 0.25% in early August. And in the case of a rate hike, we would not see CNB continuing its hiking cycle at a regular interval as we, anticipate the subsequent course of inflation around CEE to be soft. Rather, we would see a rate hike as a one-off adjustment of the policy rate away from 'technical zero'. We see EUR-CZK gradually declining further over the coming year.
Hence, contemplating above technical as well as fundamental rationale, we advocate shorts in EURCZK via forward contracts of far month tenors – for southward targets upto 25.77 or below, expiry 27 November 2017. Marked at 2.25%.
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