Czech markets took a calm start yesterday, counting down to the ECB interest rate decision, and more important to the press conference afterwards. EUR/CZK stayed above the 28.30 mark, reinforcing the feeling that a test of the all-time highs was not on the cards anytime soon. Core bond markets saw Trichet in his press conference as moderately hawkish.
This also weighed on central European bonds and currencies. In the past, the Czech koruna was not that sensitive to interest rate differentials. However, this time the broader correction in the region and the prospect that the negative interest rate gap vis-ŕ-vis the euro zone might stay in place for a prolonged period of time (or potentially even will be deepened) at least was a good reason for CZK-long positions to take some profit. So, after testing the 28.26 barrier a few times over the previous sessions, the EUR/CZK pair this time went the opposite way and returned to the middle of the recent sideway range of 28.22/62, in place since late January. Some stop-losses being hit added to the momentum. The EUR/CZK pair closed the day near the intra-day highs at around 28.48.
(CSOB - Investment research)