Czech Koruna CZK intervention

M

m22au

http://www.zerohedge.com/news/2013-...first-fx-intervention-11-years-koruna-plunges

The CZK has been sitting very close to the 27.00 level in the last couple of days as a result of the announcement described in the above article.

Today it even went above 27 for a short period of time.

I'm considering going long EUR/CZK in anticipation of further CZK depreciation, particularly given the possibility that the decline to 27 may not be enough to achieve the central bank's economic goals.

Furthermore, there seems to be low risk of the currency falling by more than 1% below 27, due to the above announcement.

Thoughts?
 
A couple of facts that you may to keep in mind:
1) CNB has a target of EURCZK at 27
2) The vote in favor of intervention was probably quite close (given the closeness of the previous votes against)

Not obvious.
 
Quote from Martinghoul:

A couple of facts that you may to keep in mind:
1) CNB has a target of EURCZK at 27
2) The vote in favor of intervention was probably quite close (given the closeness of the previous votes against)

Not obvious.
More...

Thanks for your feedback Martinghoul.

Good point #2.

Regarding #1, does that mean you believe the CNB will/would buy CZK if EURCZK went "well above" 27 (eg. to 27.27)?

My initial thoughts are that the CNB would welcome additional depreciation of the CZK above 27 - but then again I could be wrong.
 
Quote from m22au:
Thanks for your feedback Martinghoul.

Good point #2.

Regarding #1, does that mean you believe the CNB will/would buy CZK if EURCZK went "well above" 27 (eg. to 27.27)?

My initial thoughts are that the CNB would welcome additional depreciation of the CZK above 27 - but then again I could be wrong.
More...
Yeah, they certainly won't oppose it if EURCZK went above 27. However, as things stand now, it's not their intention to push it above 27. That's all I am suggesting and it's not to discourage you from doing the trade or anything like that.
 
Quote from m22au:

The CZK has been sitting very close to the 27.00 level in the last couple of days as a result of the announcement described in the above article.

Today it even went above 27 for a short period of time.

I'm considering going long EUR/CZK in anticipation of further CZK depreciation, particularly given the possibility that the decline to 27 may not be enough to achieve the central bank's economic goals.

Furthermore, there seems to be low risk of the currency falling by more than 1% below 27, due to the above announcement.

Thoughts? [/B]
More...

Who does not like to go with the strong?
 
Quote from m22au:



Today it even went above 27 for a short period of time.

I'm considering going long EUR/CZK in anticipation of further CZK depreciation, particularly given the possibility that the decline to 27 may not be enough to achieve the central bank's economic goals.


Thoughts?
More...

What is the carry on CZK? If carry is good, what if they short the pair when it is strong?
 
Quote from Martinghoul:

Yeah, they certainly won't oppose it if EURCZK went above 27. However, as things stand now, it's not their intention to push it above 27. That's all I am suggesting and it's not to discourage you from doing the trade or anything like that.
More...

For sure, you're not responsible if I make a losing trade.

I agree that it's not their current intention to push it above 27, but so long as any further depreciation is orderly, I doubt they would fight it.

From my charts I see that EUR/CZK has not traded below 26.93 since 10am ET on Thursday 7 November.

Assumptions:
* The depreciation to 27 is not successful in generating massive inflation (let's say, above 10% per annum) leading to the second assumption
* Constant CNB sales at 26.93 or higher to keep EURCZK close to 27.

Based on the above, one could buy EUR/CZK with a stop at 26.92, and then wait and see what transpires.

One concern I have is that the trade idea seems a bit too obvious.
 
Quote from tradingjournals:

What is the carry on CZK? If carry is good, what if the short the pair when it is strong?
More...

http://www.cnb.cz/en/public/media_s...b/2013/20131107_monetary_policy_decision.html

I will confess that:
* I don't know which interest rate to use from the above press release (0.05% or 0.25%)
* I don't have quotes for EURCZK forwards

Even using the higher interest rate of 0.25%, it seems there is a zero or positive interest rate differential when buying EURCZK.

There are futures
http://www.cmegroup.com/trading/fx/emerging-market/euro-fx-czech-koruna_contract_specifications.html

but it doesn't look like they are actively traded.
 
I wish you the best against them. I would not trust a word they say. These central bank people could use words to get others to do the work for them, and they sit in the shade.
 
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