CZK: Koruna Holds Steady, CNB Minutes Under Scrutiny

• RES 4: 114-10   High Apr 7 (cont.)
• RES 3: 114-00   Round number resistance
• RES 2: 113-29   High Sep 11 and the bull trigger 
• RES 1: 113-17+ High Oct 14  
• PRICE:‌‌ 113-14 @ 11:10 BST Oct 15
• SUP 1: 112-26 20-day EMA  
• SUP 2: 112-16/01 50-day EMA / 50.0% of Jul 15 - Sep 11 upleg
• SUP 3: 111-26   Low Aug 26 
• SUP 4: 111-13+ Low Aug 18 and a key support 

Treasuries are holding on to this week’s gains and a bullish theme remains intact. Last Friday’s climb resulted in a break of the 113-00 handle, signalling scope for stronger rally towards 113-29, the Sep 11 high and a bull trigger. Clearance of this hurdle would confirm a resumption of the M/T uptrend. Support at the 50-day EMA at 112-16 remains intact for now. A clear break of the average would expose 111-13+, the Aug 18 low and a key support.

Italy’s 2026 draft budget was approved by the government yesterday. As has been reported in recent weeks, the government expects the budget deficit to fall to 3% GDP in 2025. The deficit is expected to fall to 2.8% in 2026, 2.6% in 2027 and 2.3% in 2028. The 2026 deficit forecast is slightly more optimistic than current Bloomberg consensus of 3.0% and the EC’s Spring Projection round forecast of 2.9% (which of course do not yet account for the policies incorporated into the budget proposal).

• Having already tightened by ~35bps this year, the 10-year BTP/Bund spread has struggled to sustainably consolidated below 80bps in recent months. Upcoming growth data and ratings action will be key in determining whether further near-term narrowing is plausible.
• Growth: Q3 flash GDP is due on October 30. Consensus (according to Bloomberg’s ECFC page) looks for 0.1% Q/Q growth (vs -0.1% prior). We have previously noted that the main barrier to continued Italian fiscal consolidation is the country’s weak growth trajectory.   
• Ratings: Moody’s will review Italy’s rating on November 21 (current rating Baa3, Outlook Positive). Moody's rating is two notches below Fitch and S&P, so at least a one notch upgrade is expected. We still think a one notch upgrade to Baa2 while maintaining a positive outlook seems reasonable.
• Some details of the budget proposal via Politico:
  • “While ongoing discussions between the government and banks have yet to yield an agreement on what form the tax would take, the hard-right League, of which Giorgetti is a member, is seeking between €4 billion and €4.5 billion from a range of measures, according to two people familiar with the matter. The measures would also apply to insurers, one of the people said”.
  • “Major policies in the draft budget, which Italian lawmakers will study in the coming months, includes a €9 billion cut to income taxes for the Italian middle class to 33 percent from 35 percent and €2 billion to align salaries with the cost of living after years of stagnation.

  •  “The draft, which is due to be sent to the European Commission on Wednesday, also earmarks €3.5 billion for “anti-poverty measures” and €2.4 billion for health care in 2026".