Dear all,
I've once written a blog on this pair, about the peg Everything You Need to Know About Peg on EUR/CZK and How to Trade it Afterwards.
We are back above 27 czech crowns per euro and so I think this pair deserves an attention of forexmospherians again.
Few words about current development. The reason why Czech National Bank (CNB) set a peg on 27.00 like 5 years ago were the deflationary tendencies which are thought to be harmful for the economy. The level of a "healthy" inflation was reached through this monetary channel and the peg was left. Why it is on my spotlight - here are several scenarios which can influence the exhcange rate of this currency pair in the near future:
- The level of inflation will keep rising, an action by the CNB will be required to make the crown a bit stronger and thus avoid the "unhealthy" levels of inflation.
- The situation in the eurozone will sharpen, the Italy and other countries will be calling for their exits to leave eurozone. This will cause turbulences in the FX market. One might think, this will weaken the euro and thus this pair will continue moving downwards (relatively stronger czech crown). However, this view is not correct. First of all, the czech currency is weak in terms of that investors and speculators do not want to hold this currency during any period of market turbulences (see the huge upside move due to COVID-19 market uncertainty), this implies even weaker czech crown -> thus a move upside. Furthermore, Italy leaving eurozone would imply relatively stronger euro because the stronger economies will be left in the eurozone area.
One situation above implies to go LONG and the other one to go SHORT this pair. Pick one, which you like, or come up with your own and trade it along the way.
In my shorter term view, the technical analysis implies SHORT EUR/CZK. Daily chart -> double top, but keep in mind the 27.00000 level, which plays the most crucial role here.
Comments
Bounced from 27, as I said, very crucial level on this pair=))
Just to briefly mention, this pair is trading under 27 which for me means taking short from the upper resistance levels. However, keep in mind if any market turbulences occured, this pair will fly high up.