EUR-CZK volatile ahead of today’s CNB meeting

EUR-CZK has jumped to 27,20 ahead of today's CNB meeting. Does the market sense that a change in monetary policy is coming today? Such perception may have been fuelled by remarks made by dovish board members, Mr Lizal in particular, who has stated that the CenBank may soon have to ease policy further. 

What could be the method of easing? Most board members have ruled out a hike to the EUR-CZK floor from 27.00. On the other hand, the idea of negative interest rate has been debated. Nevertheless, it is not a move, but the signal, which matters, if CNB were to signal today that inflation risks has shifted to the downside, and that the CB intends to ease policy further in due course, the market would be right to push up EUR-CZK in anticipation. 

We expect dovish language overall, but we do not expect a clear signal that monetary easing will resume. Rather, there could even be a simpler explanation for recent CZK weakness, that the CNB has been intervening more in past days to get EUR-CZK further away from the 27.00 floor, this may have been triggered by risk-reversals plummeting lower in recent days which may have alerted CNB. 

"In the end, EUR/CZK is expected to be volatile in both directions as EM assets remain under pressure, but to remain in the 27.10 region on average through end-2015", says Commerzbank.