CZK: Koruna On Back Foot, CNB Minutes & Local Data Take Focus

EUR/CZK has edged higher but holds a familiar range so far, generally trading sideways since hitting new cyclical highs at the beginning of the month. The rate last changes hands +0.023 at 25.160, with bulls looking for a move through recent highs, towards Apr 10 high of 25.448. However, the recent bearish 50-DMA/200-DMA crossover puts bears on alert, keeping them on the lookout for a dip in spot EUR/CZK through the 200-DMA (24.860).

• The minutes of the CNB's recent monetary policy meeting (outcome: -50bp) showed that Eva Zamrazilova and Karina Kubelkova dissented in favour of a 25bp rate cut. The document also revealed that Zamrazilova believed that "were monetary policy to be eased in excess of the market outlook, there was a risk that the koruna would weaken further and potentially also be more volatile." Kubelkova said that a widening rate differential with the Fed could prompt further and more long-lasting koruna depreciation. Jan Frait also thought that "the koruna may currently be undervalued" and "the exchange rate component of the monetary conditions might thus be easier than would be desirable," but this did not prevent him from backing a 50bp cut.
• The latest batch of Czech activity data fell on the weaker side, with industrial output coming in at -3.2% Y/Y (versus -1.2% expected). Komercni banka commented that the data suggest that stagnation in domestic industry continued in Q2. Construction output shrank 6.8% Y/Y, as the sector remained in relatively weak shape. Meanwhile, trade balance remained in surplus (+CZK13.6bn) but fell short of expectations (+CZK28.4bn).