EUR/CZK goodbye to the peg? – Danske Bank

Analyst at Danske Bank Aila Mih sees there is scope for the floor on EUR/CZK to be removed at some point this year.

Key Quotes

“We still expect a EUR/CZK floor removal in mid-2017, when inflation sustainably reaches the CNB’s target, as FX reserves also create no great concerns for now”.

“However, with the recent inflation developments, there is a risk of an exit as early as Q2 17. We expect a further move down in EUR/CZK forwards over coming months as the exit draws nearer”.

“The CZK is fundamentally undervalued from a REER point of view; however, the CNB’s readiness to intervene after the exit if needed to smooth out FX swings and covering of short positions should limit significant CZK strengthening after the exit”.

“Hence, we project the cross will settle in the 25.5-26.0 range following the exit and our forecast for EUR/CZK is 27.0 in 1M and 3M, 26.0 in 6M and 25.5 in 12M”.