Mar 23, 2017 – Is the Czech Central Bank ready to remove the EURCZK 27.000 floor?
Well, as mentioned in our Market Update yesterday link, something must be baking no doubt…
There many traders asking the question how to trade the move but unfortunately, there is a huge two-way risk related to unpegging of EURCZK. As it is getting very crowded and nothing has been going on (spot wise) except for Czech National Bank regularly intervening there, the risk of abrupt move within almost inexistent liquidity is very high. Thus many brokers charge high margin requirements on spot trades or went manually on forwards and completely removed option trading.
More and more traders question the date when CNB will remove the peg. Wouldn’t be surprised if central bank moves soon (already in April/May) what is before the summer and well before next parliamentary elections in the fall this year in Czech Republic. It can do so even in between the official rate announcement days as the CNB may be pressed by inflation pressure.
Next CNB meeting is taking place on Mar 30, what is right before the end of the period (Q1 2017), thus before the deadline the CNB gave to market to keep the EURCZK floor at 27.000 intact. In other words we are getting closer as the following meeting takes place May 4.
Another date to watch may be Apr 10, when the March inflation data will be released. Meanwhile the year on year inflation moved to 2.5% level what is above the target level of CNB.
Read more in our article from Jan 2017 link
How to trade it? All of us recall the CHF event and let’s believe CNB won’t follow this example either. On the other hand, trades have learnt the lesson or hope so, and are aware of the potential risks. In other words, the first move will likely be down, followed by eventually swift correction back higher, bit of up-and-down yoyo…etc., and then we may get settled either way.
It is hard to say what the target lower level may be but market may still find, for example the 28.000/500 appealing to enter the shorts.
On the lower end we may look at: 26.600/650, 26.000, 25.500 or 24.000/300
…just look at the EURCZK weekly highs/lows for a sort of idea about the levels.
Should you have any questions feel free to contact me anytime.
Good luck Champs!
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