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HomeForecastUSDCZKUSDCZK: Major Uptrend to Continue

USDCZK: Major Uptrend to Continue

The USD is in a big uptrend against the CZK and in our view, the uptrend has further to run.

A review of the fundamentals sentiment and key technical levels are outlined below.

Central Bank to Become Less Hawkish

The CZK has fallen to a two-month low today after President Milos Zeman appointed Ales Michl, a central bank board member who is opposed to rate hikes, as the bank’s new governor which probably signals the end of the central bank’s hawkish stance.

The bank has increased rates by 550 basis points since June to a 23-year high of 5.75%.

Inflation is at a 14-year high in the Czech Republic but Ales Michel’s view is that rate rises won’t solve the key inflationary problem which is high energy prices.

He has indicated that current interest rates are at about the right levels and hopes to see inflation move down to below 2% in two years.

Michl noted that: “I expect I will propose, at the first meeting I lead in the summer, stability of interest rates for some time.”

He will be appointed in July.

Other Bearish Fundamentals for the CZK

Even before the change in the Central bank’s governor, we were bearish of the CZK for the following reasons: The impact of the Russia Ukraine crisis which is severe on the Eastern European countries in the EU.

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We think the eurozone is going to move into recession and send the euro lower which will pressure the Krona. We are expecting a big sell-off in risk assets which will hurt any emerging market currencies like the Krona.

While the USD has been in a strong uptrend we have far further to run on the upside in our view. In terms of the key levels of support and resistance to look out for our views are below:

Technical Analysis

On the monthly chart, we have targets of 25.00 then 2600 with support at 23.75 then 23.40.

On the daily chart if we were to correct through support level 1 it would be a buy-back above the level with a stop behind support level 2 or if we move above today’s high we would expect a continuation to the upside and stop could be behind support level 1.

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