Bank of Japan Signals Cautious Path Toward Further Rate Hikes Amid Yen Weakness 
Fed Confirms Rate Meeting Schedule Despite Severe Winter Storm in Washington D.C. 
RBA Expected to Raise Interest Rates by 25 Basis Points in February, ANZ Forecast Says 
Nasdaq Proposes Fast-Track Rule to Accelerate Index Inclusion for Major New Listings 
Goldman Predicts 50% Odds of 10% U.S. Tariff on Copper by Q1 Close 
BOJ Rate Decision in Focus as Yen Weakness and Inflation Shape Market Outlook 
US Futures Rise as Investors Eye Earnings, Inflation Data, and Wildfire Impacts 
European Stocks Rally on Chinese Growth and Mining Merger Speculation 
U.S. Stocks vs. Bonds: Are Diverging Valuations Signaling a Shift? 
Moldova Criticizes Russia Amid Transdniestria Energy Crisis 
In this write-up, we emphasize on shorting in EURCZK via 3-month forwards, which is currently trading at 25.6214. We target a 4% move lower to 24.5965 and place a stop loss at 26.0057. Our trade horizon is 6-12 months. The position is carry-neutral.
Although the Czech National Bank (CNB)’s board delivered a 25bp hike in the 2-week repo rate on 2 November, in line with our expectations and those of the market, investors were disappointed by the flattish staff forecast for 3M PRIBOR in 2018 and by the guarded tone of Governor Rusnok’s press conference. These contrasted with hawkish pre-meeting comments of several members of the Board and staff, some of whom had openly contemplated the possibility of a 50bp hike. CZK to appreciate through 2018 while CNB continues a measured hiking cycle.
We believe that measured monetary policy tightening will continue in 2018 in response to the Czech Republic’s robust economic expansion. Supporting our outlook, CNB chief economist Tomas Holub said on 3 November that the CNB targets a gradual normalization of monetary policy rates.
Hence, we anticipate four interest rate hikes next year (of 25bp each), with EURCZK sliding lower to 24.70 by year-end 2018: CNB projects strong CZK appreciation.
As re-emphasized today in the CNB’s presentation to analysts, the widening interest rate differential between the Czech Republic and Euro-area/regional economies as well as the ECB’s QE extension should result in sharp CZK appreciation in 2018 via monetary policy divergence.
