On Monday, Central European currencies posted small losses against the euro as the risk rally slowed. However, losses were relatively modest - the Hungarian forint closed well below EUR/HUF 300 level and the EUR/PLN cross rate remains close to nearly 5 month lows as well as 200 days moving average (4.2182).
Regarding the EU summit while tackling longer-term issues politicians have not delivered an eagerly and long awaited deal on Greek PSI yet. Moreover, the Czech Necas refused to sign the new fiscal treaty for the time being. However, we think that the summit brought little new important info to the marketplace in general and, as concerns the Czech move in particular, it should have a negligible impact on trading of the koruna.
Still, although the koruna has performed unexpectedly well so far this year (the EUR/CZK cross rate even touched 25.10 level), we remain rather pessimistic as regards the outlook. Even though we believe that the Czech central bank will decide to keep interest rates unchanged on Thursday and that the new inflation report, unlike the old one, might even indicate rising interest rates in longer term horizon (beyond 2012), such news might not be enough to outweigh missing solution of Greek debt problems.