EUR/CZK: Hawkish CNB to favor a move towards the pre-pandemic low at 24.767 – Rabobank

Things are moving in the wrong direction in the Czech Republic as the pandemic situation has worsened again forcing the government to postpone its plan to reopen non-essential shops. Furthermore, the Czech National Bank (CNB) hawkish stance keeps the downside bias in EUR/CZK intact, economists at Rabobank apprise.

Key quotes

“Health Minister Blatny didn’t rule out further tightening of lockdown if required. Rapidly spreading British mutation of COVID-19 and lacklustre pace of vaccination may delay economic recovery. 

“The CNB remains on track to start raising interest rates in the second half of the year. In fact, CNB Vice Governor Mora didn’t rule out a hike in June. While there is no strong consensus amongst policy makers on the timing, the next move is set to be a hike. This in turn favours further retracement in EUR/CZK over the course of 2021 on the back of widening interest rate differentials between the hawkish CNB and the dovish ECB.”

“The current corrective rebound higher in EUR/CZK should be contained by the resistance area at 26.00-26.12 as the bearish outlook remains intact. A break below the 25.57 pivot would cement the downside bias with the pre-pandemic low at 24.767 as the next target over the 6-9 month horizon.”