The Slovak FX market kept its bullish sentiment on Tuesday

The Slovak FX market kept its bullish sentiment on Tuesday. EUR/SKK appreciated slightly and went through the psychological 37.0 threshold with SKK testing all time highs.

The reason for SKK strengthening was the leakage of the budget draft for 2007. The budget draft meets the Maastricht criterion for 2007 to maintain a deficit under 3 percent of GDP, contrary to what might have been expected after the Smer pre-election promises in delivering the welfare state.

Now, the inflation criterion is in the spotlight and falling commodity prices raises chances for achieving the Maastricht inflation limit (due to higher sensitivity of Slovak HICP to moves of these prices. We look out for more details of the budget draft later today. The expected data (CPI and foreign trade) could have smaller impact on the market if they stay within the forecasted range. EUR/SKK testing all-time SKK highs on positive EMU convergence news.

(CSOB - Investment research)