CZK: Goldman Expect Further Koruna Weakness, Commerzbank Forecast Imminent Recovery
Following last week's post-CNB surge in EUR/CZK, ING write that "the market does not seem to want to test higher levels for now." However, they "think Thursday's inflation release has the potential to surprise to the downside," which could inspire further dovish CNB bets, applying renewed pressure to the koruna.
- Goldman Sachs believe that the CNB's "preference for a stronger FX has been a crucial anchor for the Koruna over the last couple of years and (...) it has been the main driver of the CZK overvaluation signal over this period," which is why they expect the termination of CNB intervention regime to have implications for CZK returns going forward.
- Goldman think that "if inflation continues to decline in coming months, and the recent deceleration in both headline and core in sequential terms endures, (...) there should gradually be less need for FX strength." They expect EUR/CZK to trend gradually higher. They revise their EUR/CZK forecasts higher to 24.25, 24.50, 24.75 in 3-, 6- and 12-months (from 23.50, 23.40, 23.40 previously).
- Local sell-side desks have flagged the potential for the koruna to exhibit increased vulnerability to global and regional shocks going forward, with the risk that it will remain weaker going forward.
- Commerzbank have offered a dissenting interpretation of last week's CNB decision, noting that "the end of the FX intervention regime should not make much difference." They point out that "some koruna losses occurred within a broader EM sell off" and "there is not a lot of idiosyncratic koruna weakness to explain in recent days." They expect the currency to "regain lost ground over the coming months."
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JGB TECHS: (U3) Fades, But Still North of Support
- RES 3: 151.26 - High Mar 3 2022
- RES 2: 149.75/150.81 - High Nov 11 / High Aug 5 2022
- RES 1: 149.21/53 High May 12 / High Mar 22
- PRICE: 147.98 @ 15:46 BST Jul 07
- SUP 1: 147.34 - Low May 26
- SUP 2: 146.11 - Low Feb 22
- SUP 3: 144.15 - Low Jan 13
JGBs continue to operate above support at 147.34, the May 26 low. The contract has breached 148.41, the May 12 high. This strengthens a bullish case and signals scope for a climb towards the next key resistance at 149.21/53, highs from May and March. Clearance of these levels would highlight an important break. To the downside, a breach of 147.34 would signal a stronger reversal and open 146.11, the Feb 22 low.
AUSSIE 10-YEAR TECHS: (U3) Trend Needle Points South
- RES 3: 97.040 - High Aug 03 2022 (cont)
- RES 2: 96.780/975 - High May 5 / High MAr 14
- RES 1: 96.440 - High Jun 2
- PRICE: 95.760 @ 15:44 BST Jul 07
- SUP 1: 95.685 - Low Jul 7
- SUP 2: 95.670 - Low Jun 17 2022
- SUP 3: 95.094 - 1.0% 10-dma envelope
Bearish conditions in Aussie 10y futures firmed with further losses early Friday as prices hit a new pullback low. This wholly erases the recent bounce and reinforces current bearish conditions. Note that moving average studies remain in bear mode, highlighting the trend direction. The recent move lower opens the Dec 29 low of 95.670 for support. A break would accelerate losses. Initial firm resistance is at 96.440, the Jun 2 high.
USDCAD TECHS: Rally Hits Reverse as NFP Short of Forecast
- RES 4: 1.3449 61.8% retracement of the May 26 - Jun 27 downleg
- RES 3: 1.3427 High Jun 7
- RES 2: 1.3401 50-dma
- RES 1: 1.3386 50.0% retracement of the May 26 - Jun 27 downleg
- PRICE: 1.3297 @ 16:16 BST Jul 7
- SUP 1: 1.3280 20-day EMA
- SUP 2: 1.3203 Low Jul 4 and a key short-term support
- SUP 3: 1.3117 Low Jun 27 and the bear trigger
- SUP 4: 1.3084 1.618 proj of the Apr 28 - May 8 - May 26 price swing
The Thursday rally in USD/CAD hit reverse Friday, as a poorer-than-expected US jobs data dented the greenback. This reverses any bullish signal emanating from the break of resistance at the 20- and 50-day EMAs earlier in the week, with the pair more neutral into the end of the week. This confirms the view that the latest recovery had been corrective in nature, refocusing markets on Initial key short-term support at 1.3203, the Jul 4 low.
