Czech currency moved sideways on Wednesday as calmer situation in both emerging markets and domestic political scene influenced the trading. Hence, the EUR/CZK pair hovered in a tight range (28.15-28.23) lacking stronger stimuli for a visible price action. It is worth mentioning that no progress on the political scene has been seen though tough the coalition talks advanced as the conservative ODS, Christian democrats and Green party are already looking for ministers’ candidates. Nevertheless the key support from the second biggest party – the Social Democrats – to get a majority has been still missing.
There are two eye-catchers today: release of the May inflation and ECB meeting. The May inflation surprised on the upside as month-on-month rise reached 0.5 %. This may bring some support for the koruna, because a part of the market might think that the CNB could increase its official rate earlier.
As concerning the ECB – in our view the central bank may hint at an increase in the current quarterly pace of tightening. Should the ECB sound hawkish today, we might see some negative correction on the Czech FX market, but a damage should be limited and the EUR/CZK should stay below the 28.30 resistance.
(CSOB - Investment research)