EUR/CZK, USD/CZK: Here’s why the Czech koruna is soaring

The Czech koruna continued rising against the euro and the US dollar. The EUR/CZK exchange rate retreated to a low of 24.35, the lowest point since October 5th. Similarly, the USD/CZK dropped to 22.30, down from the October high of 23.53. 

Czech koruna is soaring

The Czech koruna has been in a strong bullish trend in the past few days. This rally accelerated after this month’s Czech central bank decision in which the bank decided to leave rates unchanged at 7%.

The bank has maintained interest rates at 7% in the past 12 monetary policy meetings. This pause happened after the bank hiked them from the pandemic-era low of 0.25%. These hikes have helped the central bank solve the inflation problem. 

Data shows that the headline Consumer Price Index (CPI) peaked at 18% during the pandemic. They have now dropped to 8.5% and there is a likelihood that they will continue falling in the coming months. Besides, the price of crude oil and other energy sources like natural gas has pulled back recently.

Therefore, most economists were expecting the Czech Central Bank to slash interest rates in its December meeting. Besides, there are signs that the country’s economy was slowing down.

The most recent data showed that the Czech economy shrank unexpectedly in the third quarter. It dropped by 0.3% in Q3, lower than the expected stagnation. This retreat happened amid weak domestic consumer spending and external demand.

The USD/CZK pair has also dropped because of the overall weak US dollar. The closely watched dollar index, which tracks the greenback against a basket of currencies, dropped to $103.2 from the year-to-date high of $107.

EUR/CZK technical analysis

EUR/CZK by TradingView

Turning to the daily chart, we see that the EUR to CZK exchange rate has been in a strong bullish trend in the past few months. It jumped from the year-to-date low of 23.22 in January to a YTD high of 24.74. 

As the pair rose, the pair formed an ascending trendline, which is shown in black. It now moved below the lower side of this channel. It has now moved below the 50-day moving average while the Relative Strength Index (RSI) has drifted downwards.

The pair is now approaching the important support at 24.30, the lowest swing in October. Therefore, the outlook for the pair is bearish, with the next support level to watch being at 24.10, the highest swing on March 16th.