CZK: peg could be removed soon – Danske Bank

Aila Mihr, Analyst at Danske Bank, noted the floor in EUR/CZK could be removed in the next months.

Key Quotes

“For now, we maintain our call that mid-2017 seems to be the most likely EUR/CZK floor exit date, because the central bank remains wary of exiting prematurely as long as the inflation outlook is not robust”.

“However, the risk of an exit as early as Q2 17 is high. 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 significant FX swings and covering of short positions should limit significant CZK strengthening”.

“Volatility after the exit is likely to be high and we project the cross will settle in a 25.5-26.0 range. Our forecast for EUR/CZK is 27.0 in 1M and 3M, 26.0 in 6M and 25.5 in 12M”.