Koruna Weakens In Anticipation Of Next Week's Rate Decision

EUR/CZK continues to tick higher, with pre-CNB positioning taking centre stage domestically, amid the absence of major news headlines. The pair last deals +0.054 at 24.907, while EUR/CZK 1-week implied volatility printed its best levels since Dec 21. From a technical point of view, a clearance of Jan 24 high of 24.919 would expose the round figure of 25.000. Conversely, a pullback under Jan 25 low of 24.716 would give bears some temporary reprieve, shifting their focus to Jan 8 low of 24.458.

• Dovish comments from Jan Frait and Tomas Holub dominated CNB communications just before the start of the media blackout but it is unclear if they were representative of the majority sentiment on the Bank Board. The spread between 3-Month PRIBOR and Czech 1x4 FRAs has widened a tad in the recent days, with participants mulling the probability of a 50bp rate cut. ING and the Czech Banking Association revised their calls to 50bp, while HSBC stick with 25bp while noting that the CNB could accelerate the easing cycle from March.