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.

• Traders were taken by surprise in the case of EUR/CHF as SNB reaffirmed its commitment to the peg just three days ago. Here, CNB has adopted a clear communication strategy.
• The Czech economy is less than one-third the size of the Swiss economy. Its FX reserve is one-ninth the size that of SNB’s.
• The next monetary policy move from both the European Central bank (ECB) and CNB are likely to be in the same direction.

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.