The Czech koruna extended its rally, as
London-based institutional investors
continued to accumulate long positions. It is
hard to find any particular reason that
triggered this wave of buying, which have
pushed the EUR/CZK pair from the 28.35
level to koruna’s all-time highs area
(EUR/CZK 27.95).
We definitely do not buy the very simple
explanation that the recent foreign buying of
koruna assets was caused by better
prospects for early elections (which is not
true). In our view, a more likely explanation
is that koruna is playing catching up with the
other regional currencies that rallied strongly
recently, a regional rally that had the koruna
left behind. Hence, some London players
saw this discrepancy as a good investment
opportunity.
Technically, heavy foreign buying triggered
several stop losses, which appeared
especially at the 28.05 support. Although the
pair slipped below the 28.0 level, it did not
have a chance to test the all time low. Such
a test will be a key theme in upcoming
trading sessions.
Nevertheless we do not believe very much in
breaking through the all time highs. The
current positive sentiment can change quite
fast. Today, global investors might be a bit
nervous ahead of the ECB meeting.
Furthermore, tomorrow we expect rather
dovish CNB minutes and next week a huge
drop in domestic inflation rate. All these
factors are playing rather against the
strong Czech currency. Therefore, we
advice investors to protect long CZK
positions or even to take partial profit on
existing long positions.
(CSOB - Investment research)