The EUR/CZK continues to trade sideways below the strong resistance standing at the 28.385 level, which has been tested several times in recent days, but has remained unbroken. The Czech currency stays amazingly steady despite an ongoing weakness in the region. We find the only one reason, why the Czech currency has been an exception among currently weaker CE currencies – this is the strategy of Czech exporters to hedge their FX position immediately when the currency weakens.
Currently it seems that the EUR/CZK 28.38 level is sufficiently attractive for hedging. As concern a development on the political scene – coalition talks between the conservative ODS, Christian Democrats and Greens successfully continue, but the key
majority in parliament is still missing. As concern the schedule for confidence vote, given the current stage of coalition talks, it is expected that it should come at the end of July.
Given the empty domestic calendar the market focus will be definitely on development in other markets. From this perspective a rebound of US and Asian equity markets should provide some support for the koruna and the EUR/CZK might eventually dip closer to the 28.2 area.
(CSOB - Investment research)