Despite some gains seen in the other FX markets in Central Europe, the Czech koruna stayed in a sideways mode on Thursday. The EUR/CZK held in a very tight range (28.22-28.28) the whole session virtually ignoring a development in emerging markets.
The market is now clearly awaiting an outcome of the weekend polls, which might significantly influence the Czech economic policy during next four years, including the koruna’s road to the euro-zone. In a short term perspective, the election outcome, which would imply a set-up of a new coalition, would decisive for the domestic FX market. In this respect, we believe that any outcome, which will lead to a coalition without the Communist party (direct or indirect), could be positive for the Czech currency. In our view, the worst case post-election scenario (the Communist influencing the new administration) has a 30 % probability. Hence, in other cases, the koruna might gain on Monday morning.
Nevertheless today, the koruna might appear under modest downward pressure as pre-election uncertainty and vulnerable sentiment in emerging markets ahead the US pay-rolls might rule the market.
(CSOB - Investment research)