Euro (EUR) is the official currency of the European Union. Because it is supported by the economies of developed countries, it is considered quite stable and highly liquid. The euro is most affected by the statements of the European Central Bank and the political decisions of the leaders of the commonwealth countries.
Purely from an economic point of view, EUR does not have a clear link to any product or material factor. This makes the euro one of the most popular instruments for trading.
Czech koruna (CZK) is the national currency of the Czech Republic. The country refused to switch to the euro, but until 2017, the national bank (CEC) maintained pegging to the euro at the rate of 27 CZK for 1 EUR.
The rapid growth of the Czech economy and the risk of deflation forced the central bank to abandon tight ties and let go of the exchange rate. As a result, the euro went slightly down, to 25-26 CZK.
In the same period, the pair began to arouse interest among traders. Since the volatility of the exchange rate at the end of 2017 and the beginning of 2018 increased 2.5 times, and the lack of regulation opened the price corridor.
The excitement around the EUR/CZK pair ended quite quickly because with all the advantages there was a serious drawback – low liquidity. Even taking into account the lack of state regulation, the koruna exchange rate quickly settled down and entered a very narrow price range.
However, EUR/CZK trading is possible during events related to the country’s economy. Such news can increase volatility and increase the liquidity of the pair.
The Czech economy benefits from low oil prices, as crude oil and oil products account for more than 8% of total imports. On the other hand, low fuel prices hinder the growth of the consumer price index and, therefore, strengthen the koruna.
Although the Czech economy is developing, it should be noted that, unlike Hungary and Poland, the Czech Republic depends on the global automotive industry, both in the assembly for re-export and in the cars for sale section.
Almost 20% of Czech exports are related to the automotive industry. Almost 78% of all exports are destined for Europe, including EU member states and Russia.
The lion’s share of this export, destined for Germany, makes almost 29% of all exports, while less than 2% is destined for China, India, Japan or the United States. In other words, the continuation of Czech economic expansion depends on Europe.
The aforementioned facts are interesting enough for traders. Unlike most Eastern European countries, the Czech Republic has a stable and in-demand basis for economic development. Therefore, there is a reason to consider the koruna a stable and relatively safe currency.
The next point concerns relations with Germany. The growth of the German economy means that the country will begin to spend more money and pour it into the economy of its partners. This will strengthen the koruna even more against the euro. The recession of the German economy will lead to a weakening of the CZK.
Traders also need to consider important news from the world of finance. First of all, we are talking about the monetary policy of the Central European Bank and the Czech Central Bank. An increase in interest rates on the koruna makes the euro cheaper.
The pair stays in the price range from 25.4 to 25.9 korunas for 1 euro. This is a fairly narrow range in which it is difficult to count on a large margin, so it makes no sense to open long-term orders.
On the other hand, short positions against the background of iconic news can bring good and quick profit. But we should not forget that such orders are the riskiest, so they need to be supported by 1-2 additional orders.