Despite worse-than-expected April’s foreign trade figures, rising yields in core bond markets and ongoing electoral deadlock the Czech koruna was able to recoup part of its post-election losses and firmed. Obviously, the market has become by future political instability, which might be an issue soon, but definitely not in coming days. In such calmer environment, the Czech unit has room for appreciation, so the EUR/CZK dipped back to its favorite territory in the 28.2 area yesterday.
It is worth repeating that the leader of the wining conservative party ODS has a chance to set up a new government. But even though smaller parties – Christian Democrats and the Green party – have already express their will to cooperate with the ODS, everybody knows in the Czech Rep. that such a coalition has only 100 seats from 200 in parliament. Hence one more seat is need to receive sufficient support in parliament. So far Social Democrats have not provided any indication that they would tolerate the center-right government in power. Thus, that’s why we do not see no progress on the domestic political front. Today, given the empty domestic calend ar the EUR/CZK pair might develop a sideways pattern and wait for the tomorrow’s inflation data and Thursday’s ECB meeting respectively. Czech koruna recoups its looses.
(CSOB - Investment research)