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Koruna Snaps Spell Of Recovery, CNB Rate Decision Eyed Thursday


The recent corrective pullback in EUR/CZK paused around the pair's 200-DMA yesterday. Although the rate has turned bid this morning, it remains below the 24.00 figure, last trading +0.075 at 23.959. Komercni banka wrote this morning that recent koruna gains were likely corrective, ahead of the upcoming CNB monetary policy decision on Thursday. They wrote that Governor Michl can be expected to "confirm his policy of a strong koruna" and push back against dovish market bets.

  • Czechia's S&P Global Manufacturing PMI rose to 41.4 in July from 40.8 recorded in June, beating the 40.1 median estimate in a Bloomberg survey. Still, the sector remains in weak shape. According to S&P Global, "disinflationary pressures remained a key theme at Czech manufacturers as dwindling demand for inputs led to supplier discounts and lower material costs." They "currently forecast cuts to interest rates made by the CNB (Czech National Bank) to begin in the fourth quarter of 2023."
  • Czechia's budget balance will be closely watched later today (13:00BST/14:00CEST) amid the government's ongoing efforts to reduce fiscal shortfalls. The deficit target for this year is CZK295bn and it may prove difficult for the government not to exceed it. The deficit narrowed to CZK215.4bn in June due to seasonal factors.
  • From a technical point of view, a break above Jul 24 high of 24.187 is needed to signal that bulls remain in control. Bears keep an eye on the 200-DMA (23.858) and should that moving average give way, they could take aim at the 23.745 area, which supported price action in mid-July.

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