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Sniffing a Peg-break Series: Violent moves unlikely in EUR/CZK
Czech National Bank (CNB) confirmed earlier this month that the central bank would abandon its almost four-year-old Euro-Koruna peg this year and sometime middle of the year. The date is yet to be chosen. Looking from the communications it seems that this peg break will not be a major shock, like the one the market had in January 2015, when the Swiss National Bank (SNB) abruptly ended its 3-year old Euro-Franc peg. That day, within pixel time, the Swiss franc was up almost 40 percent against the euro, a violent unprecedented move which took down many brokers in the FX space.
However, this peg break or abandonment is unlikely to be anything of that sort.
We suspect that after the peg is removed Koruna would appreciate towards 25 per euro, relatively fast but after that, the acceleration would slow down. The Czech koruna is currently pegged at 27 per euro.