The EUR/CZK tests 200-day moving average resistance, though the koruna still might face the skeptical CNB

Upbeat business sentiment in Czech industry confirmed the ongoing recovery of the Czech economy or at least its export part yesterday. The Purchasing Managers Index (PMI) rose for the third consecutive time and, since May, has been above the key level of 50 points, which distinguishes recession from expansion. The PMI structure is also great. All components of the index, particularly new orders of exporters, are improving. According to our tests, this is the most reliable sign of the future development of Czech industry, and is therefore included in our forward-looking indicator for the Czech Republic (CSOB Flash). New export orders (within the PMI) rose for the fourth consecutive month, having hit their highest level since the middle of 2011. The positive data also had an effect on the Czech
koruna, which strengthened, with the EUR/CZK currency pair already starting to test the key support level, which stands at a 200-day average.

Nevertheless, the koruna, just as the other currencies in the region, will need to wait (before strengthening to any great extent) for the reaction of core markets to the key September FOMC meeting and in this respect important macro figure - the U.S. payrolls released this Friday. In addition, the favourable cyclical statistics from industry in Germany and the Czech Republic may not necessarily overshadow concerns about the approaching meeting of the Czech National Bank. As results from the minutes of the last CNB Board meeting, several members already voted for interventions against the koruna a month and a half ago (we believe that 3 of 7 members voted in favour). In this respect today’s release of GDP details is a mixed bag, since it has showed that the growth was still driven by external demand. So, this is the reason why the koruna may again become uneasy ahead of the September’s central bank meeting (September 26).