USD/CZK: Positive developments are likely benefit the Czech koruna

Analysts at MUFG Bank, see a potential trade idea of shorting the USD/CZK pair with an entry-level at 21.620, a target at 20.850, and stop-loss at 22.140. They point out pessimism over Europe is beginning to ease and the improving situation regarding the coronavirus will encourage expectations for rate hikes.

Key Quotes:

“The recent pullback in long-term US yields despite much stronger US activity and inflation data has helped to dampen upside risks for the USD in the near-term. At the same time, the Fed continues to signal strongly that it will maintain loose policy well into the recovery.”

“In contrast, the EUR and Central European currencies including the CZK have been undermined in recent months by heightened concerns over disruption from the ongoing spread of COVID. The recent pick up in the pace of the vaccine roll out in the EU is challenging current market pessimism. At the same time, new COVID cases have dropped back sharply in the Czech Republic and reached their lowest level over the past week since late last year.”

“The positive developments are likely to encourage market speculation that the CNB will be able to carry through with plans to begin rate hikes between the end of Q2 and end of this year. Well ahead of rate hikes from the ECB and Fed. Over the past month, USD/CZK has also had one of the strongest positive correlations with global equity market performance.”

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