The Czech currency was hit by sharp selling as CNB Vice-governor Niedermayer published an article in the most popular daily, which considered the 2007 budget draft to be the worst and most dangerous in years. According Niedermayers opinion the country could not adopt the euro in 2010 – in line with the previous official target. While Niedermayer’s comments did not bring anything new Vice-governor’s critique optimally met negative sentiment, which has been building since last Friday. As a result the EUR/CZK broke above several key resistances and moved deep in to the 28.5 territory.
Today, w e believe that the situation should calm down. Since other currencies in the region have firmed in recent days, we believe these gains should help recoup koruna part of its yesterday’s losses. So, a return of the 28.4 area is likely, but we do take into account that politics and related budget issues have began to weigh on the koruna. ¨ CZK weakens visibly on budget criticism. The Hungarian forint yesterday followed the Polish zloty and again tested its new 4-week highs at 272.90 EUR/HUF. Today the domestic economic calendar is again blank thus regional sentiment will be decisive. Although we do not exclude that in case of positive regional sentiment the forint can continue to move towards slightly firmer levels, we still believe that probability of correction especially because of unfavorable macroeconomic fundamentals remains high.
(CSOB - Investment research)